The P2P Payment Wars

NEW YORK (MainStreet) —The fight is real, and it involves some of the biggest bruisers in financial services. The question however is blunt: do any of the rest of us honestly care at all about peer-to-peer payment tools that would let us, with a few clicks, send a tenner to any email address or maybe any Twitter handle, possibly any cellphone number?

The tools to do all that exist and they work fine -- but the truth also is that the vast majority of financial institutions have no p2p offering. What's more, most of us have never used them.

“Only 12 of the top 100 banks have p2p,” said Paul Grill at the consulting firm First Annapolis, which has studied p2p adoption in depth. That number dates back to research conducted four months ago, and the number may have nudged up a click or two. Either way, p2p usage is anemic.

The oddity is how terrifically p2p works, for those who take the plunge. It’s fast, convenient, often free. Need to pay a babysitter $20? Send a $25 birthday gift to a nephew on the other coast? $500 to a roommate as a share of the rent? P2P is ideal for any of those use cases.

The alternative in those for instances is to pay in cash or check and, understand, these are not cases where online bill payment could easily be brought into service. Attempt to pay a person, rather than an established business, using the bill pay that is part of online banking and almost all institutions will print out a check and pop it into U.S. Mail to the recipient, meaning a delay of many days, possibly a week or more. It also necessitates knowing the recipient’s mailing address.

Thus the argument for p2p, which promises transfers within a couple days (real time transfers are in tests and probably will be rolled out broadly within a few years) for transfers within an institution. Transfers to other institutions can take longer, as kinks in cross-institution transfers are still being ironed out.

And at what cost for a peer-to-peer payment? There’s the rub. P2P can be free - or involve charges of many dollars. Financial institutions are plainly in an experimental mode. Some - Chase’s QuickPay, for instance - are free to send or receive (QuickPay is only available to Chase customers).

Others charge tiny fees. Des Moines, Iowa-based startup Dwolla, for instance, imposes a 25-cent charge on any transactions over $10. Less than that, sending the money is free. Just about any U.S. bank account can be linked to it to fund or receive payments.

Still others have variable rates. PopMoney, for instance, which is available at some 1,800 banks and credit unions, according to Tom Roberts, a senior vice president a Fiserv, the Brookfield, Wisc. bank technology company which owns PopMoney, has charges set by the offering institution. Some give it away, others collect fees, said Roberts.

PopMoney also offers a direct-to-consumers website and an app where users can link just about any U.S. bank account and make transfers for a flat fee of $0.95.

PayPal has a complicated pricing formula, where most true person-to-person payments are free (the $25 to the nephew for instance), foreign transfers involve fees (up to 3.9%), and payments to businesses usually also involve fees. PayPal also links with just about any U.S. bank, and it will also link to credit cards (at higher transaction fees).

Also in the mix is clearXchange - the engine behind the Chase p2p, which also powers peer-to-person at Bank of America and Wells Fargo, which together represent over one-third of all U.S. banking customers. Aleia van Dyke, an analyst with Javelin Research, indicated that there are strong rumors that clearXchange and PopMoney are nearing an agreement that would allow users to easily send money between the networks - “that would represent over half of U.S. banking customers,” said Van Dyke. It might also be fuel to light more awareness of p2p, she suggested.

PopMoney’s Roberts declined to comment on the possible tie-up of the Fiserv service with clearXchange, except to say, “Logically it would make sense for the two to combine.” That is because such a union of giants would remove almost all friction from p2p for perhaps one in two U.S. banking customers.

The big question: when will p2p really take off? “We are growing very rapidly,” said Roberts, although he declined to release PopMoney’s numbers. “Not much goes viral instantly. P2P will take off but that will take time.”

When? Right now, nobody is making firm bets - which leaves convenient and cheap (or free) p2p as maybe the best kept secret in today’s banking.

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