By John Stewart
PayPal Holdings Inc. on Tuesday cranked up the heat on a person-to-person payments market that’s already close to full boil. In a blog post on PayPal’s site, PayPal chief operating officer Bill Ready announced the company has started testing instant transfers from users’ PayPal wallets to their bank accounts. The transfers take “a matter of minutes,” Ready says, compared to 24 hours or more with existing automated clearing house transfers.
This may be a program in beta for now, but PayPal apparently plans a fast expansion. The new instant-transfer service, Ready says, “will be made available to all U.S. PayPal users with eligible Visa or Mastercard debit cards over the coming weeks and months.” Through a spokesperson, PayPal refuses to disclose how many accountholders have eligible Visa or Mastercard debit cards or what percentage of its account base these holders represent. It also will not say how many are participating in the beta.
When the service is available commerically, eligible cards “will be the vast majority of Visa and Mastercard debit cards. There may be some exceptions when it comes to small [financial institutions],” says the spokesperson. “Users will see in their account whether their debit card is eligible.”
The new service competes with a similar one that Square Inc. rolled out 10 months ago and comes as many of the nation’s major financial institutions are introducing a P2P service called Zelle that offers remittances between bank accounts within minutes.
PayPal’s instant transfers rely on sweeping agreements the company made last year with Visa Inc. and Mastercard Inc. to favor transfers through network-branded cards rather than continue its historic reliance on the ACH. That gives debit card holders who also have PayPal accounts the ability to initiate payments into their bank accounts using their cards and the Visa and Mastercard networks. “This offering has been expected since the announcement of the PayPal, Visa, and Mastercard deals,” notes Rick Oglesby, principal at AZ Payments Group, a Mesa, Ariz.-based consultancy.
Since debit card payments are more expensive than ACH transactions, PayPal is charging 25 cents per instant transfer, compared to 1% at Square, making PayPal more economical on any transfer above $25. PayPal’s ACH-based service remains free to users.
Observers see rising competition in P2P, particularly from the new Zelle service, as the spark for PayPal’s introduction of faster bank-account funding. Consumers using Zelle during its soft launch processed $16 billion through the network in the first quarter. That was cash that flowed directly into bank accounts, ready for withdrawal through checks, ATMs, and debit cards.
“P2P is poised to dive deeper into low-value transactions, and PayPal has to have a solution that addresses the need to instantly transfer these kinds of payments,” independent payments consultant Patti Hewitt tells Digital Transactions News. “These are real cash-displacement payments, so making funds available is a must-have feature, or it’s simply not competitive.”
At the same time, the irony of a technocentric non-bank company looking to catch up with a network of banks is not lost on some observers. “The rollout of a faster-transfer option is a scenario where fintech is trying to keep up with a banking solution. This doesn’t happen every day,” says Sarah Grotta, director of the debit advisory service at Mercator Advisory Group, Maynard, Mass.
In the meantime, more and more players are crowding into the market. The most recent entrant is Apple Inc., which earlier this month announced it will add a P2P capability to Apple Pay this fall, relying on the company’s Messages service.
“P2P is going to be very interesting to watch this year,” notes Grotta. “It will be interesting to figure out how many variations of P2P a consumer is comfortable maintaining.”