Peer-to-peer payments are emerging as an increasingly competitive part of mobile banking, with banks, fintech companies, and technology providers offering consumers faster and easier ways to transfer money. As services from PayPal, Venmo, Square, and financial institutions gain traction, banks must determine not only how to deliver P2P payment services but also whether consumers will be willing to pay for them.
The differing approaches taken by U.S. Bank and Bank of America highlight a broader question surrounding the value of real-time P2P payments. While charging for faster transfers could create a new source of fee income, free alternatives may make it difficult for financial institutions to convince customers that these services warrant an additional charge.
U.S. Bank and Bank of America got together this spring on a system that lets people instantly pay money to a friend on a smartphone — with a crucial difference.
U.S. Bank charges $6.95 for the service. Bank of America offers it for free.
“There’s already a bit of a discord between us and the other bank that came out with one of the real-time payments,” Richard Davis, U.S. Bank chief executive, told analysts and investors earlier this year. “We have to make sure that the business of banking doesn’t become a utility in the minds of the consumers where they expect everything to come without a value price to it.”
The conflict highlights an upheaval in banking around the emerging service known in tech and banking as peer-to-peer payments. Fast-acting firms like PayPal, Venmo and Square have already attracted millions of users and handled billions of dollars’ worth of transactions in which people pay someone else with a tap on a screen rather than handing over some bills and coins.
Banks Face Growing Competition for Mobile P2P Payments
As banking customers have a wide variety of mobile-based apps to choose from today — many from non-bank providers — banks and credit unions should be vigilant in assessing market threats and opportunities. In many cases, FI channels and mobile banking partners can help, as they are already investing in latest-generation mobile banking and payments features, and have delivered solutions for other FIs. These partners can help deliver proven solutions faster than can be realized by in-house FI development teams, because the underlying architecture already exists, and can be tailored to FIs’ specific needs.
The rapid growth of mobile payment apps means banks and credit unions are competing not only with one another but also with non-bank providers that have already attracted significant numbers of consumers. Financial institutions must evaluate how pricing, speed, convenience, and the overall mobile experience affect customers’ choice of P2P payment services.
Partnerships with established mobile banking and payments providers could help financial institutions respond more quickly to this changing market. Rather than developing every capability internally, banks and credit unions can potentially use existing technology platforms to introduce proven features while tailoring them to their own customers. As peer-to-peer payments become a more important part of mobile banking, the ability to introduce competitive services quickly could help financial institutions maintain their role in customers’ everyday financial transactions.
Overview by Ed O’Brien, Director, Banking Channels Advisory Service at Mercator Advisory Group
