Banks Can Mine P2P for Big Revenue If They Can Get It Right, Networks Say

Financial institutions have much to gain from fees and cost savings if they offer person-to-person payments and get it right, according to representatives of three leading P2P networks who spoke on a panel at a banking conference on Monday. The keys to getting this relatively nascent payment form right lie in interoperability and mass usage, the panelists said.

“We think there is a huge revenue opportunity for banks,” said Sanjeev Dheer, president of the CashEdge division at Fiserv Inc. Fiserv, which acquired CashEdge last year, recently combined its ZashPay P2P payments network with CashEdge’s Popmoney service under the Popmoney brand.  Dheer advised the audience of bank executives to be “aggressive” in seeking usage fees from consumers. “It’s either going to be dramatically more convenient [for users] or it won’t be,” he noted, adding that in the former case consumers will gladly pay for the service.

Banks can also gain from savings from converting what were paper transactions to electronic formats. “We believe P2P is a measure to get cash and checks out of the [banking] system,” said John Feldman, general manager of clearXchange, a new network formed last year by banking titans Bank of America Corp., JPMorgan Chase & Co., and Wells Fargo & Co. Indeed, consumer-to-consumer payments were the only category of checks that showed growth from 2006 to 2009, increasing at an average annual rate of 3% from 2.2 billion to 2.4 billion items, according to the Federal Reserve Payments Study released in December 2010.

“A consumer writing a check is not engaged with your bank,” said Arkady Fridman, financial innovations business development manager at PayPal Inc., which three years ago began marketing its own P2P platform to banks. By contrast, a branded P2P service ties consumers more closely to their bank, he argued.

The panelists also saw opportunity for banks to regain market share from remittance services, which have dominated cross-border payments as individuals send money to friends or relatives.

But by far the most lucrative opportunity lies in consumer fees, with the panelists agreeing that consumers will pay for a P2P service because of the convenience. “We know consumers are willing to pay,” said Fridman, adding that PayPal leaves it up to banks using its platform whether to levy fees or not. PayPal charges the banks for each transaction.

Dheer said features such as the ability to request payments and the timing of settlement, with the automated clearing house network moving from two-day clearing eventually to same-day clearing, will reinforce the case for consumer fees for the service. “Will consumers pay for it? Absolutely,” he said.

Still, the P2P services are still building out their networks and are far from achieving the ubiquity of endpoints that would mimic the utility of checks, let alone help justify fees. While clearXchange, for example, can claim the backing of three of the nation’s largest banks, it knows it can’t stop with those accounts, however numerous. “This [network] was created to be a catalyst for interoperability, it wasn’t meant to be just the three banks,” Feldman told Digital Transactions News. He said clearXchange is “in conversations” with other potential participants but would not go any farther, citing non-disclosure agreements. “We’re the most NDAed organization out there,” he joked in speaking to Digital Transactions News.

Dheer emphasized the importance of network reach by pointing out that consumer fees, or “monetization,” as the panelist referred to the subject, will only become possible as users become assured that anyone can receive the payments they are sending. “This will only get to the stage of monetization when you get to tens of millions of users,” he said.

As critical as interoperability will be the so-called user experience, the panelists agreed. This refers to the attractiveness and ease of use of the P2P platform as an online or mobile service. Here bankers may have some work to do.  “This has not been the strong suit of banks,” observed Dheer. “You [must] sweat the details of the user experience.”

The panel was part of the Bank Administration Institute’s Payments Connect conference in Las Vegas, Nev.