5 key developments in P2P adoption

February 20, 2019 8:01 AM

Consumers are expressing an ever-increasing interest in making digital Person-to-Person payments to friends, families and even businesses for bills, shared expenses or temporary loans. Digital P2P payments are quickly beginning to displace other payment forms such as cash and checks due to their convenience and growing ubiquity.

Businesses have also picked up on this growing adoption of P2P and are now leveraging the services. Examples include Papa John’s adding Venmo to its mobile app for splitting pizza orders and Uber adding Venmo as a payment option for its ride-sharing service. By adding acceptance of P2P payments, businesses are finding that they can reduce their cost of payment acceptance (compared to credit cards, checks and even cash) while improving the overall customer satisfaction and even building loyalty.

One of the avenues being used to encourage shopping is by adding a physical debit card to the P2P mobile wallet. Venmo first tested a plastic debit card in 2017 before offering to a wider group of customers last year. The Square Cash App P2P service announced its new debit card in a tweet from CEO, Jack Dorsey, in 2017 with a photo of his new card.

Consumers will often use multiple P2P platforms instead of limiting themselves to just a single service. According to a 2018 survey of 2,436 U.S. consumers with a checking account and cellphone by Q2 and Cornerstone Advisors, most banked respondents reported using two or more P2P payment services, with younger consumers having among the lowest levels of single-service usage.

The reasons for using multiple services can be based on a variety of factors including payment acceptance, how a request for payment is made or simply user preference.

Seniors and baby boomers (52-72 years old) tend to concentrate their P2P payments with just one or two services. Thirty-three percent of consumers in this age group reported that they used only a single service while 43 percent stated they used two different P2P services. In contrast, over half (51 percent) of younger consumers aged 21-29 years old noted that they use three or more P2P services — 22 percent using three to four P2P services and 29 percent using five to six services.

One might ask, how can a person use so many different services? Oftentimes it can be the result of using multiple different social media, text and email platforms that offer it, such as Facebook Messenger, Apple iMessage, Google, and until late August 2018, SnapChat.

While consumers across generations may report that they will rely on using one or more P2P services to make payments, it’s the millennial generation that are the real P2P power users.

Forty-two percent of younger millennials and late Gen Z consumers (18-24 years old) reported that they had conducted a P2P payment in 2017, based on the TSYS 2017 U.S. Consumer Payments Survey of 1,200 adults. Older millennials (25-34 years old) conducted slightly more P2P transactions in 2017 coming in at 45 percent, which is the highest of all age groups.

In addition to younger consumers being more exposed to digital P2P services on social media platforms, another factor to consider whether or not P2P services are used to pay bills (both formal and informal) is the life stage of the consumer. For example, younger consumers are more likely to attend social events and venues such as bars and concerts where shared expenses will occur than older consumers such as seniors. Communal living arrangement where rent and utilities are shared are more likely to occur earlier in life than when a consumer is starting a family or nearing retirement.

Despite low levels of P2P usage among older consumers, there is a broad sentiment among non-P2P users that many will make P2P transactions in the next year, even among seniors (65+) according to the TSYS 2017 U.S. Consumer Payments Survey of 1,200 adults. Twenty-two percent of seniors (65+) who did not make a P2P transaction in the past year reported that they were very likely or likely to begin using P2P services in the next 12 months.

Over half of all non-P2P users under the age of 55 reported that they were very likely or likely to be making P2P transactions in the next 12 months. Almost two-thirds (64 percent) of older millennials (25-34 years old) expected to be making P2P transactions. This comes as no surprise since they were also the group with the highest active P2P usage.

The report found that many of the non-users of P2P services were reluctant to do so based on security concerns. This was particularly evident among consumers 55 and over as 45 percent of these non-users reported this as a factor in comparison to just 29 percent among the 18-24 year old age group.

Younger millennials (21-29 years old) made the most P2P payments out of all age groups who used P2P services by a wide margin, but the age group taking second place was a surprise. The younger millennials who used P2P services transferred $5,472 according to a 2018 survey of 2,436 U.S. consumers with a checking account and cellphone by Q2 and Cornerstone Advisors.

In second place were boomers/seniors (54-72 years old) who transferred $4,497 when using P2P services, followed by older millennials (30-38 years old) with $3,709 transferred and rounding out last place were Gen Xers at $3,131.

When it came to the different services used by younger millennials, both the banks and PayPal (which also owns Venmo) were the big winners. Zelle, on the other hand, saw very little volume at $49 or less than 1 percent from this group. There are three likely factors that are affecting Zelle P2P adoption among this group: First, Zelle is live at only 60 institutions so availability is a limiting factor. Second: Banks, PayPal and Venmo have been in market for a longer period of time so there is greater familiarity with brands by consumers and acceptors. Finally, payment integration with social media and merchants for Google, Snapcash, Venmo, etc. is much deeper than Zelle.

In a 2018 benchmark study of mobile P2P payment services by Consumer Reports, Apple Pay ranked the highest of the five different services reviewed, garnering a “Very Good” rating which is reserved for apps scoring between 61-80. The standalone Zelle app (not part of a mobile banking app) received the lowest rating at 50 and was awarded only a “Good” rating which is given to apps that score in the 41-60 range.

The ratings were based on analyses of operations and data policies performed by Consumer Reports between December 2017 and July 2018. The overall score was based on the following criteria: payment authentication, data security, data privacy, customer support and broad access.

The study was updated in mid-September to reflect a change by Zelle’s operator, Early Warning Services, to add a pop-up warning was added to help prevent users from inadvertently sending money to the wrong person.

Consumer Reports rated Apple Pay the highest overall, with strong marks in consumer protection measures of payment authentication and data privacy. Zelle received high marks for error-resolution policies, finding help within the app and for customer support. Venmo scored poorly on data privacy, which could be understandable since users can choose to share their Venmo transaction data publicly. However, Venmo has recently considered making it harder to see what other people are buying.