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The payments industry’s long struggle to bring person-to-person payments to a mass market reached a new milestone in recent days with the addition of real-time settlement. Under an agreement announced late last week, the NYCE Payments Network LLC will offer CashEdge Inc.’s Popmoney person-to-person payments service to its financial-institution clients, speeding up payments and also putting pressure on non-banks, like PayPal Inc., that have been aggressively promoting their own P2P services.
Most P2P payments today are automated clearing house debits that can take up to two days to settle. But a Popmoney payment on NYCE’s electronic funds transfer network rails will happen in real time, a feature some experts say will make the service much more attractive to users. Also, a spokesperson for Fiserv Inc. says transactions for the processor's ZashPay P2P service would be able to go over Fiserv's Accel/Exchange EFT network later this year. “Certainly it’s a great leveraging of the power of the EFT network, which is to authorize and settle in real time,” says Patricia Hewitt, director of the Debit Advisory Service at Mercator Advisory Group Inc. “It begins to change the paradigm around it.”
The routing of P2P transactions on EFT network rails puts pressure on other industry providers to match the new, higher speeds, including alternative-payments leader PayPal. PayPal, whose main business is online payments by consumers to businesses, has been trumpeting its own person-to-person payment service. “Because they are kind of the one to beat, they’re the ones people are going to be looking to gain market share from,” says Hewitt. A PayPal spokesperson refused to comment on the matter.
Outside research would indicate consumer demand for electronic P2P services. The Federal Reserve’s latest payments study, released in December, shows that while overall check use continued its long-term decline in the 2006-09 study period, consumers wrote more than 2 billion checks to each other each year and such check-writing grew at a compounded annual rate of 3%. Three other major categories, consumer to business, business to business, and business to consumer, declined at annualized rates of 11%, 2%, and 3%, respectively.
Enabling real-time P2P payments for its 3,600 financial-institution members was the reason NYCE struck the agreement with CashEdge, network president Neil Marcous tells Digital Transactions News. “NYCE is embarking on a program to introduce a variety of solutions that an institution can pick from,” says Marcous, who is also executive vice president of network solutions at NYCE’s parent company, Jacksonville, Fla.-based processor Fidelity National Information Services Inc. (FIS). Regarding P2P specifically, he says, “A number of institutions indicated that would make a lot of sense.”
None of NYCE’s client banks or credit unions has yet committed to offering Popmoney to its customers, but Marcous is certain the investment will pay off. “I can’t tell you we have a huge amount of pull demand at this moment, but it is growing,” he says. “I think the offline environment did not get much pull demand.”
Popmoney will be available through NYCE member institutions’ online and mobile-banking sites, and NYCE says the rapid growth of smart phones will give further impetus to P2P payments. If the recipient’s bank or credit union doesn’t belong to NYCE, the payment would revert to the ACH. Marcous, however, says reciprocal agreements between NYCE and other EFT networks are one solution to keep the transactions flowing in real time. He won’t say if NYCE has any such deals cooking, but he adds, “We are always actively looking for ways to expand product offerings for our customers.”
For New York City-based CashEdge, the NYCE agreement with its real-time settlement adds momentum to the Popmoney product that launched in December 2009 and is offered by 170 banks (the three largest are Citibank, U.S. Bank, and PNC.) “That’s what we’re excited about,” says Neil Platt, senior vice president and general manager, U.S. banking. “Our medium-term aspiration is to achieve P2P payments that are real-time and low-cost … this is a beginning of a departure for us, from ACH.” Last October, CashEdge and wire-transfer provider MoneyGram International Inc. announced they had signed a letter of intent to integrate their services so that Popmoney recipients could direct their funds to any of MoneyGram’s 200,000 retail agent locations in 190-plus countries.
CashEdge earns its revenues on Popmoney primarily by charging transaction-based fees to financial institutions. Each bank and credit union sets retail pricing, and many industry observers have speculated that financial institutions see new payment services as a way to compensate for lost debit card revenues with the coming of debit card interchange regulation. “We expect that some banks may charge,” says Platt. “We’re well aware that banks are experiencing some pain in regard to fee revenues.” Many might make the basic P2P service free but charge for Popmoney’s various other components, such as electronic gift cards, he adds.
