The Next Chapter in P2P Payments

My daughter loves to cook, so I surprised her with a next-generation attachment for her mixer that slices, dices and spiralizes (turns veggies into noodles). It is amazing how much prep time it saves her. Now instead of using several manual tools, she has the latest and greatest that does it all. She loves the ease of use, convenience and speedy results.

In today’s time-constrained world, advantages like simplicity, speed and convenience are table stakes for just about everything. In financial services, a great deal of attention is being focused on immediacy and reducing friction—improving ease of use and security. The good news is that payments in general are moving in this direction, with person-to-person payments specifically at the forefront of this trend. P2P is not new, but a confluence of factors coming together foreshadow a big opportunity with a new, improved generation of P2P for credit unions. Get ready to play a commanding role in offering P2P to your members that delivers on all these benefits.

Out With the Old, in With the New

It’s important to look at the history of P2P to appreciate how far it has come. The very earliest forms of P2P payments included bartering and cash, and eventually checks. This got the job done, but in the age of the internet, these methods became outdated, inefficient and didn’t keep pace with evolving expectations.

The early versions of online P2P were a step forward, but still left opportunities for improvement. With online P2P, both the sender and recipient had to physically be in front of a computer to take action. Recipients had to provide their routing and account numbers to indicate where the funds were to be sent. As checkbooks increasingly were left behind in desk drawers and became displaced by debit cards, this step was a cumbersome barrier. Many consumers, concerned about security and privacy, hesitated to share their account credentials with an unfamiliar entity. Traditional P2P also used the ACH network to move funds; the recipient might have to wait several days to receive the money.

Enter the smartphone. Users with a “small computer” in their pockets now engage in a plethora of activities to manage their money while on the go. This year, more than a third of consumers will access the web solely with mobile devices. The “always on, always available” aspect of mobile fueled demand for an easy way to send money quickly. Recent research shows that almost half of mobile wallet users do so to make instant payments. Consumers have begun using mobile P2P for more than just splitting a dinner bill—they are paying babysitters, sending monetary gifts, reimbursing roommates for household expenses, transferring emergency funds to relatives and more. Millennials drove initial adoption (nearly half have used P2P in the past 30 days alone), but other generations are joining in, with about 75 percent of Gen Xers and two-thirds of baby boomers sending funds via P2P. 

Despite consumers placing more trust in their financial institutions, third-party solutions captured P2P market share by delivering digital experiences, diverting transactions that might have originated at credit unions. Even still, some of these options have obstacles: users confined to “walled gardens” requiring another day or two to move the funds from the P2P product into their account.

Big Changes in 2017

In 2017 and beyond, innovations designed to address these usability barriers are emerging, providing several options for credit unions to reclaim their P2P leadership and accelerate adoption by exceeding consumer expectations:

• Visa and MasterCard provide P2P capabilities that leverage the debit rails to speed transactions, expanding the potential reach of P2P to millions of recipients.  Credit unions can also participate in Zelle, a broad network of institutions and processors like Jack Henry & Associates, Monett, Mo., launching later this year. Zelle is an inter-bank P2P solution which promises a ubiquitous network for real-time payments, national brand recognition and an easy-to-use digital experience.
• Also on the horizon, The Clearing House, a private-sector ACH operator, will be launching a real-time payments system that allows consumers and businesses to send and receive payments instantly, directly from their accounts at financial institutions.

These next-generation options transform transactions into positive, intuitive member experiences. The ubiquitous nature of these contemporary solutions means sending money to someone else is simple, convenient and reliable. Money can be sent across the country as fast as across the table. Recipients will enjoy enhanced cash flow, thanks to funds deposited directly into their account with immediate availability. Transactions will occur 24/7/365, requiring only an email address or mobile phone number instead of account information.

It’s no wonder many experts believe that 2017 will be the year that P2P transaction volume will reach unprecedented levels. Isn’t it remarkable how the right tools make things faster and easier?

Deborah Phillips, AAP, combines her expertise in payments industry issues, compliance, marketplace intelligence, product management and marketing to drive strategy and innovation as managing director of payment strategy at Jack Henry & Associates, Monett, Mo. Operating as a payments partner to approximately 5,600 banks, credit unions and diverse businesses, the organization supports virtually every payment type and channel. Phillips is a recognized speaker, presenting at national and regional venues, and is a frequent contributor to a wide variety of magazines and trade publications.