The Future Person to Person Payments
Out to eat with friends with no cash to chip in once the bill comes or want to pay your roommate for your share of the electric bill? Nobody writes checks anymore now that Venmo has the market cornered on person-to-person payments. The big banks are behind the curve and trying to catch up. According to PayPal’s SEC filings (Venmo parent company), the service is providing over $5.6 Billion in payment volume in a given quarter. Person-to-Person payments are gaining traction daily and still holding on to double digit growth. Venmo is clearly a leader with millennials and their preference for the platform integration with social media; I mean who doesn’t want to post in the Venmo app that paid Joey for Taco’s and Beer using the emoji keyboard?
Venmo has clearly been a disruptor to the big banks as it’s taken the transactions out of the normal banking world and into the information technology lane. In response, some big banks – Bank of America, Chase, and Wells Fargo – joined forces in 2011 created clearXchange. clearXchange has been branded as Zelle. clearXchange offers person-to-person (P2P), business-to-consumer (B2C), and government-to-consumer (G2C) payments. In 2015, clearXchange announced the availability of a real-time payment system. In contrast, Zelle banks process 170 million P2P payments, totaling $55 billion in 2016.
Ideally, this is to replace or supplement sending payments via Automated Clearing House (ACH) that has been around since 1974. Here are some statics according to the National Automated Clearing House Association (NACHA):
NACHA and the ACH Network are at the center of American commerce, moving $43 trillion each year. That’s made up of more than 25 billion electronic financial transactions, including Direct Deposit via ACH, Social Security and government benefits, electronic bill payments such as utility and mortgage payments, and person-to-person (P2P) and business-to-business (B2B) payments.
Most banks at this time do not charge fees for ACH payment but the cash movement takes 2-3 business days to show up. With a “we want it now” society, ACH is too antiquated for person-to-person type transactions. Plus it requires a whole bunch of private information and paperwork to be exchanged before an ACH can be made. The Person-to-Person transactions are username based, hassle-free, and can be completed on your smart phone; where you can log in with your thumbprint! If Zelle gains industry wide acceptance and becomes the standard like ACH is for what ACH does, ideally consumers should win with the increased competition. Consumers also win as their assets do not need to be transferred thru a 3rd party and directly from bank to bank of the two people involved in the given transaction.
This space is very early in its lifecycle. If your business is in the payment processing arena, it’s certainly something to keep focused on as a lot of large brands are competing in this space.