After years of conceding the P2P payments market to non-bank entrants like PayPal, financial institutions, card associations and the vendors who serve them are joining the fray. As banks and other financial institutions enter the market, the pace suddenly has grown frantic, writes Charles Davis.
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A host of announcements over recent weeks illustrate a new-found interest in person-to-person (P2P) payments, as financial services companies realise a rich source of revenue is in real danger of slipping away.
Fortunately for banks and credit unions in the US, a steady stream of emerging P2P platforms designed exclusively for financial institutions suddenly offer a variety of choices for those wanting to offer a consumer-to-consumer payment option.
The arrival of titans American Express and Visa and a renewed push by Fiserv demonstrate the P2P market will feature spirited competition for financial institution clients.
American Express upped the ante considerably with the unveiling of Serve, a digital payment and commerce platform that gives consumers the ability to make purchases and P2P payments online at serve.com, via mobile phones, and atms of merchants who accept American Express cards.
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By GlobalDataUnlike other P2P offerings to date, Serve is a virtual wallet that unifies multiple payment options into a single account that can be funded from a bank account, debit, credit or charge card, or by receiving money from another Serve account. Through Serve, American Express aims to expand into new segments of the market that do not rely on traditional charge and credit cards to manage their day-to-day finances.
"Serve is a new type of payment platform that isn’t tied to a single card or mobile operating system," said American Express group president, enterprise growth, Dan Schulman.
"It is a flexible, easy-to-use platform, which from day one brings tremendous assets to the alternative payments space and gives consumers an option to shop online and off-line atms of merchants who accept American Express."
Consumers set up an online account at Serve.com or through a smartphone app. Funds can be added from bank accounts, debit cards, credit and charge cards, or other Serve accounts. Customers can use those accounts to send and receive money to friends, pay bills and make purchases online.
Serve bridges online and offline commerce each customer will be issued a Serve reloadable prepaid card linked to their Serve account that can be used at any merchant or ATM that accepts American Express cards.
Serve also offers users the ability to easily create, manage, and specify sub-accounts for their friends, family members or colleagues. Sub-accounts are linked to the master account and allow users to set spending profiles for everything from children’s allowances to babysitter fees.
"Serve lets customers transact both on- and off-line with all activity linked to their digital master account or their e-wallet," Shulman said.
"One of the most difficult problems with e-wallets is consumers want to use the funds contained within that e-wallet to make purchases not just online but also at brick-and-mortar stores; and sometimes they even want to be able to take cash out of that account."
Serve is available immediately to anyone in the US and is expected to launch into other international markets over the coming year, following a marketing pilot in Eugene, Oregon.
While payments are the foundation of the Serve platform, the issuer is also building a network of partners who will use the platform to deliver relevant offers that drive spend and build loyalty. Three of the first partners are Ticketmaster, Concur and Flipswap.
Ticketmaster will offer Serve as a platform for customers to make and collect payments toward ticket purchases from other customers. Concur will use Serve as an expense management and reimbursement method for transactions processed via Concurs small business expense reporting service, Concur Breeze. Flipswap will utilise Serve to issue refunds more quickly to consumers who sell or trade in their old mobile and cell phones for reuse or recycling.
American Express is positioning Serve as a thrifty P2P alternative, with only two fees for consumers and a waiver of all fees for putting money into the Serve account for the next six months. Following the six-month waiver, the fee will be 2.9% plus 30 cents per load, discounted to 0% for cash, debit and ACH deposits. After one free ATM cash withdrawal monthly, each cash withdrawal will cost $2.
This means, unlike most other P2P products, Serve has no fees to open an account, no monthly fees, no fees for P2P transactions and no fees to set up sub-accounts.
Merchants who accept American Express cards will pay a prepaid discount rate for transactions made both in stores and online with a Serve prepaid card.
Serve the brand AmEx gave to the alternative payment provider Revolution Money after buying it in 2009 is not restricted to American Express cardholders. Any card brand or bank account can be used to fund Serve transactions, and it works automatically with any merchant that already accepts Amex cards.
AmEx also will allow third-party developers to connect to Serve using software development kits and open application programming interfaces. This will allow Serve payments to be built into televisions sets, for example.
Not to be outdone, Visa Inc also announced a major renewal of its earlier P2P efforts. Consumers in the US will soon be able to receive and send funds to any eligible Visa credit, debit or prepaid account, anywhere in the world.
Visa officials said its P2P service was made possible through technical enhancements to VisaNet, Visa’s global payments processing network, and through the introduction of a new Visa transaction type that allows financial institutions to accept incoming funds.
Visa also announced strategic product agreements with CashEdge, and Fiserv, two of the leading providers of electronic person-to-person payment, account transfer and bill payment services to US financial institutions.
Through the agreements, CashEdge and Fiserv will have access to VisaNet, enabling them to integrate the Visa personal payment service into their respective person-to-person platforms Popmoney and ZashPay. This will allow a participating banks customers to send money directly to a Visa account.
Bank customers of participating financial institutions will have the option to select a Visa account as the destination for funds when making a personal payment. By entering the recipients 16-digit Visa account, email address or mobile phone number, consumers can send funds directly from their bank account to a recipient’s Visa account.
Visa already offers personal payments by financial institutions outside the US with more than 70 programmes around the world enabling consumers to send funds to Visa accounts.
Popmoney and ZashPay now allow users to send and receive payments by withdrawing funds from bank accounts and transmitting them primarily as an ACH transaction. CashEdge said it plans to offer Visa Money Transfer this summer and Fiserv said it plans to do so later this year.
Banks getting on board
Banks are jumping aboard the P2P bandwagon as vendor-driven solutions hit the market. FirstBank, the subsidiary of FirstBank Holding Co in Lakewood, Colorado, began offering its online banking customers the ability to send money through Visas money transfer service in the third quarter of 2010 through a pilot with Visa.
Fiserv said 700 banks have agreed to use ZashPay and 500 are already live with the service. About 200 banks use CashEdge’s Popmoney service. Both vendors said they will offer Visas service as an optional add-on to their bank clients.
Fiserv also sees a P2P opportunity in credit unions and community banks, and has built a network of nine credit unions that will lean on the firm for an account processing platform with a range of capabilities for online and mobile banking, P2P payments, electronic statements and loan origination.
US ATM networks are getting into the P2P market as well, in the form of PIN debit, which functions in much the same way. Shazam, a leading ATM network, has partnered with technology vendor Acculynk to offer that firms PaySecure software-only payment method for internet PIN debit to all of Shazams eligible banks and credit unions.
"We were one of the first EFT networks to announce a partnership with Acculynk for PaySecure back in July 2009, just five months after the product was introduced," said Terry Dooley, Shazam CIO and senior vice-president of information technology.
"We certainly understood the utility PaySecure would bring to our financial institutions when we first partnered with Acculynk. With the potential regulation on debit card interchange, PaySecure becomes even more relevant to our issuer base because of its fraud and charge-back reduction capabilities, which are inherently lower when using a PIN."
PaySecure works through the use of a graphical PIN pad embedded into the merchant checkout. Consumers use their existing debit card and financial institution-issued PIN to pay with PaySecure right on the merchant website. There are no passwords, enrolment or redirection required, making it a simple payment service for consumers to use for their everyday Internet shopping. A similar system also enables P2P payment.
The number of bank P2P entrants grows daily, most notably fueled by the addition of many smaller US institutions eager to emulate the larger competitors in their markets.
Banks such as Heartland Bank of Bloomington, Indiana are finding it easier than ever before to incorporate P2P payments. Heartland president and CEO G Scott McComb said the bank recently added both bill presentment and P2P payments.
"Continuing to advance our electronic delivery channels is what clients want out of their bank these days. Best of all, we have the personal service to back it up," McComb said.
The Huntington National Bank, a Midwestern regional bank, teamed with CashEdge to provide its Popmoney P2P and mobile payments service to its customers.
"There is clear and growing consumer demand for email and mobile payment services provided by their financial institutions," said CashEdge senior vice-president and general manager for US banking Neil Platt.
"By offering Popmoney to its customers, Huntington is meeting this increased demand, and joining nearly 200 financial institutions in providing the most secure email and mobile payments service currently available."
CashEdge also landed the ATM network NYCE for its PopMoney product, and the network will offer the solution to its more than 3,000 financial institution clients.
Gorilla in the midst
All of these offerings will square off with the P2Ps 400-pound gorilla, PayPal, whose dominance of the market is difficult to adequately express.
PayPals greatest advantage is ease of use. By leveraging PayPal’s global network to send money, the sender needs only to log on to online banking, enter the destination email address or mobile phone number, and transfer the money.
If the recipient is one of the 90m PayPal users, the funds will be deposited instantly for verified accounts. If the recipient does not have a PayPal account, prompts lead them to create one. That ease of use, coupled with PayPals daunting market and branding lead, means that competing third party providers will have a steep hill to climb to make any headway in todays P2P sector.
PayPal also is being used to store and send money to kids in college, pay the rent, pay household bills not simply send friends some funds.
Even businesses leverage the company’s payment network, and that ought to keep bankers up and night, and working diligently on a P2P solution of their own.
