Once avoided as a money-loser, person-to-person payments are picking up momentum, with Discover Financial Services as the latest entrant. Discover’s Money Messenger service, which went live Monday, allows cardholders to send cash to anyone with a PayPal account. Recipients who aren’t PayPal customers can set up an account quickly via a streamlined process, PayPal says.
With the service, which Discover is offering free, senders initiate transactions with a recipient’s e-mail address or mobile-phone number, and transactions show up on senders’ statements as if they were ordinary purchases and count toward rewards points. Funds are available to payees immediately, with PayPal fronting the cash and then waiting for settlement via the automated clearing house network.
Mike Boush, vice president for e-business at Riverwoods, Ill.-based Discover, tells Digital Transactions News he tested the service last weekend, just prior to launch. “The entire transaction was delivered in seconds,” he says. He won’t say whether usage so far is meeting expectations. “We track usage but it’s way too soon to tell,” he says. “We haven’t marketed it aggressively at all.”
Banks historically shunned P2P, arguing the service couldn’t generate enough volume to justify development and operating costs. But over the past year or so, banks and bank processors have adopted P2P as a way to pick up volume still relegated to cash and checks, and lately the card networks have begun to move into the market. American Express Co.’s new Serve unit offers P2P payments, and Visa Inc. recently agreed to offer P2P transfers to its cardholders through two rival services, ZashPay from Fiserv Inc. and Popmoney from CashEdge Inc. But unlike the Visa service, Money Messenger doesn’t send cash to a recipient’s card account, opening the service to a broader range of potential payees, Boush argues. “You just tell me your mobile-phone number or your e-mail address,” he says. “It would defeat the purpose of P2P” for senders to worry about whether payees are Discover cardholders, he adds.
Discover represents the largest announced client yet for PayPal, which has been offering P2P processing to banks since opening its platform to outside developers in 2009. Two bank-solutions vendors, Fidelity National Information Services Inc. and S1 Corp., developed P2P processing services for PayPal’s platform.
Money Messenger allows Discover “to crack the cash market, the check market, a market that’s been off-limits to card issuers” says Dan Schatt, senior director and head of financial innovations at San Jose, Calif.-based PayPal. “Now [Discover] can claim they’re accepted at more places than anyone in the world.”
But Boush says the new service isn’t intended to boost volume on Discover’s network so much as to meet cardholders’ needs and thus win their loyalty. “If we provide services that are remarkable, customers will talk about them and they will make us their primary card,” he says.
That customer need, says Boush, is to find a way to track cash transactions, something he says Discover found out a few years ago when it launched an online budgeting tool called the Spend Analyzer, which was limited to card spending. “Customers said, ‘I love it, but how do I get more of my spend captured by this tool?’” Those queries, Boush says, lent impetus to the idea of allowing cardholders to electronify a wider range of transactions.
Boush says Discover could have built its own solution, but decided to go with PayPal after the processor opened its platform and began courting potential clients in financial services. “It seemed strategically sound,” he says, to do a deal with a partner with a strong, established position in the P2P market. While critics have decried the idea of banking companies working with PayPal, fearing that their customers will ultimately become PayPal customers, Boush says Discover wasn’t deterred. That’s because the two companies have different business models, he says. “Our business model is to take spending already occurring and offer a value proposition that offers rewards and the ability to pay over time,” he notes. “That is not in conflict with PayPal.”