Why are P2P payments slow on the uptake in the US?

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After speaking with Chris Burfield from FIS about the vendor’s recent person-to-person (P2P) payments project at US-based Everbank, a question arose: why are these types of services slow on the uptake in the US?

Everbank, a Florida-based bank with $19.8 billion in assets, launched its P2P service in Q1 2014. The P2P service the bank uses is FIS People Pay, a product that launched in early 2013 and is built on the vendor’s PayNet network. Everbank’s clients are now able to quickly send payments online or from their mobile phones to friends, family or colleagues, using just an email or text message, Burfield says. He adds that because the service is fully branded to Everbank, clients are reassured that it is a safe and secure process.

This type of capability has long been available in many parts of the world, and a number of banks and FIs have got in on the action. However, Burfield notes that around 600 banks are using the US heavyweight’s P2P product portfolio in total. That’s all… (according to the Federal Deposit Insurance Corporation (FDIC), there were 6626 institutions in the US as of September 2014).

Burfield thinks the US is ‘still relatively early in the consumer adoption of these services, it has lagged behind what many in the industry have predicted’. Many of the solutions in the US banking industry to date, he says, have had elements that added friction to the process, most notably the fact that payments do not clear immediately via automated clearing houses (ACH) and the requisite work-arounds to mitigate funding risk, as well as the use of a secondary account as a store of value (e.g not debiting and crediting directly to the consumers’ bank account).

The industry has not yet embraced a model of interoperability, Burfield thinks. He says: ‘As a consumer, I shouldn’t have to enrol in a separate P2P service because my friend’s bank uses a different solution to my FI or one provided outside of the FI channel. Interoperability will eventually lead to reduced friction in using these solutions and will drive broader adoption and consumer relevance.’ An example of the lack of industry interoperability is the announcement that e-commerce giant, Amazon, is to pull the plug on its WebPay service next month, saying that the P2P for money transfer platform is not ‘addressing a customer pain point particularly better than anyone else’. Amazon says that it does not offer an alternative P2P system, but it is not clear if the firm plans to abandon the field completely. The Amazon WebPay website states: ‘We've learned a great deal about how and when customers want to send money and will look for ways to use these lessons in the future.’

Perhaps the process for money transfers is still too difficult for the end users in the US? Some P2P systems require consumers to undergo a lengthy registration on their bank’s website and some even charge for the use of the service, but there are other options that are more user-friendly (or claim to be such). With People Pay for example, Burfield explains a consumer needs to click into the application via the online or mobile channels of their FI to send a transaction. They can then initiate a payment by providing a name and either an email address or mobile number for the recipient. The recipient will receive a message indicating they have a payment from the sender, and the message will specify a claim code and a URL for the sending bank’s branded claim site where the recipient can claim the payment. This is still quite a lengthy task! Compare this process to that of the UK’s Paym platform, for instance, which requires a customer to simply register their mobile phone number and the account they want payments made into with their bank to receive payments. Friends and family are then able to pay directly into any registered account using just a mobile number and the funds will transfer instantly.

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