At the Intersection of P2P and Social

As Millennials lead the person-to-person transaction movement, more companies are launching P2P apps and blending social media with payments.

By Christine Umbrell

During the past several years, U.S. consumers—and young adults in particular—have been using person-to-person (P2P) payments technology to send money to each other via mobile application, employing this technology to split a restaurant bill or share rent or travel expenses. This trend is growing, with more Americans of all ages using apps such as Venmo, Square Cash, and PayPal to transfer funds. Now, many financial institutions, including Wells Fargo, Chase, and Bank of America, also are offering P2P transactions between account holders. It seems Americans are becoming more willing to use their smartphones to make financial transactions, prompting more companies to join the P2P movement.

As we transition to an increasingly cashless society, P2P offers benefits for transferring funds, primarily to friends and family—but to a growing number of retailers as well. In many cases, the transfer of payment is free for the user, and comes directly out of a bank or credit card account that is linked to a mobile application.

Bridging the Generational Gap

“The market for P2P payments continues to grow and evolve as new technologies, new vendors, and new capabilities stream into our daily lives, providing consumers with a dazzling array of options for sending money to other people for whatever reason they need,” concludes a report by Javelin, “P2P Payments in 2015.” The study found that Millennials ages 25 to 34 are the “power users of mobile P2P” because they typically send the largest amounts with the most frequency. The top three uses for P2P payments are to give gifts (39 percent), to pay a bill (38 percent), and to repay a friend for entertainment and dining (29 percent), according to Javelin.

The rise in popularity of P2P can be attributed to several factors, says Matthew Goldman, founder of Wallaby Financial and CPO of BankRate, with adoption by young adults as the most significant driver. “At its most basic, people don’t carry very much cash anymore. There is a lot of attention to Millennials not carrying credit cards, but they do carry debit cards, as do most of the general population,” he says. “With little cash, but active social lives, there is a need to pay each other for meals, tickets, and more. P2P payments makes this easy.”

Millennials were “the early adopters, with whom P2P became popular, and now it’s moving out of the early adoption stage and into the mainstream,” says Emily Boese, senior manager at First Annapolis Consulting. In August, First Annapolis released its latest “Study of Mobile Banking & Payments,” which found that adoption of P2P has more than doubled in the past year: While only 13 percent of consumers had made a recent P2P payment using their mobile phone in May of 2015, that number had grown to 27 percent in June of 2016.

The report also found that use of P2P payments is highest among Millennials. Thirty-seven percent of consumers younger than 35 have made a P2P payment, compared to only 23 percent of those ages 35 to 44, and 15 percent of ages 45 to 54, according to the First Annapolis data.

“Consumers are increasingly confident transacting online and on mobile phones,” says Boese. And just as Millennials were some of the earliest adopters of smartphones, they are paving the way for a broader spectrum of individuals to test P2P payments.

Larger, More Social Transactions

As P2P gains acceptance among consumers, the technology is evolving, with many developers working in tandem with social media to expand options. “Embedding P2P payments in other experiences is the biggest trend to watch,” says Goldman. Square, Facebook Messenger, and Google’s payments within Gmail are the “best examples” of this strategy, he says. “Putting a payments button in an existing social experience makes it easy.”

Venmo, the current P2P poster child darling due to its “simple interface, mobile focus, and a little bit of fun thrown in to make it very popular,” says Goldman, is well-known for its tie-ins to social media. Transactions are free with a linked debit card, linked bank account, or current Venmo balance, while credit cards require a 3 percent transaction fee. Each Venmo account has a limit of $299.99 in transactions per week—unless a user verifies his or her identity by linking with a Facebook account or adding personal information, including last four digits of a Social Security number, zip code, and birthdate; then, the per-week limit rises to $2,999.99.

In addition to allowing P2P transactions, Venmo has several features that are familiar to social media users. Users can add, search, and invite friends to join the platform, and each transaction is automatically shared on the user’s Venmo newsfeed—including who the user paid and why (but not the amount), unless the user selects a privacy setting. Friends also can “Like” or “Comment” on charges, creating a truly social transaction environment.

Similarly, several other apps blend payment capabilities with social networking. Snapchat has a new P2P feature called Snapcash; Square’s Square Cash app allows customers to set up profiles and locate nearby Square Cash users via Bluetooth; and Fiserv’s Popmoney app allows users to access the payment’s memo field to send messages. Even Bitcoin recently entered this space: Bitcoin provider iPayYou announced last July that it has launched “Pay-by-Twitter,” a service that allows users to support their favorite campaigns and charities and share funds with friends and family using Twitter handles. The recipient is not required to have an iPayYou account as long as he or she has a Twitter handle.

Retail Mix-Ins

As more consumers choose to leverage P2P as part of their everyday lives, merchants are finding ways to partner with these apps to allow consumers to purchase retail products and services via this technology. For example, Venmo, which was purchased by PayPal through its $800 million acquisition of payments processing startup Braintree in 2013, announced in July that it has added a “Pay With Venmo” buy button that enables in-app payments in partnership with several e-commerce merchants. Users can “speed through checkout, split and settle the bill instantly, and share the experience with friends,” according to the blog announcement. It also provides more ways for users to interact with Venmo and can tie them more closely to the products they purchase. Initially launched in partnership with 11 merchants—including Munchery, Gametime, Priv, Parking Panda, Boxed, and delivery.com—Pay With Venmo will reportedly be expanded to include more retailers in the near future.

Combining a popular P2P app with retail options—also known as P2B, for P2P payments for businesses—may benefit both Venmo, which charges merchants 2.9 percent of each transaction, plus $0.30, and the participating merchants, who gain access to a new payment form that is popular among Millennials, as well as others. This could give a boost to merchants because consumers ages 18 to 24 conduct an average of 10.7 e-commerce purchases a month, and consumers ages 25 to 34 conduct 13.9 purchases a month, according to Javelin research.

In addition, PayPal has announced a partnership with Visa, which gives Venmo access to Visa Direct services, meaning consumers can instantly load their Venmo accounts with a Visa debit card—considerably shortening the amount of time consumers have to wait before making in-app purchases.

Facebook also is reported to be building a new P2P/retail function. Currently, Facebook allows users to send money to friends through its Messenger app, but several news sites have reported that the company will offer its Messenger chat app as another way to pay for in-store purchases. According to the reports, Facebook is building POS functionality into Facebook Messenger, and even potentially incorporating Apple Pay. If that comes to pass, Facebook Messenger could be used for purchases in brick-and-mortar stores in addition to online retail businesses, eliminating the need for consumers to stand in line at checkout counters.

Opportunities for Merchants

The P2P space has become an area that retailers and ISOs/acquirers will not be able to ignore. In the first quarter of 2016, more than $3.2 billion was transferred among users of the Venmo app, up by $1.26 billion over the first quarter of 2015, according to PayPal’s earning release. In January of 2016 alone, $1 billion was transferred via Venmo, according to PayPal. And the average Venmo user sends money through the app several times per week, says PayPal CEO Dan Schulman.

P2P will no doubt have some effect on the traditional payments profession, but just what that effect will be is unknown at this point: “There is some threat of displacement over the long run as P2P players already have their own acquirer,” says Boese, “but I could also see a future where the acquirer/ISO is a distribution channel for P2P services to merchants.”

As P2P becomes even more mainstream, payments professionals will be called upon to help merchants understand how P2P works, and how these transactions might be leveraged by retailers. Payments professionals should “be aware of what merchants want, and have ongoing conversations to determine the optimal solution for each merchant,” says Boese. While restaurants and bars may be the earliest merchants to accept P2P payments, Boese suggests that some retail companies also may adopt this trend sooner, rather than later. She describes the payments evolution as “a series of slower changes”—so there is still time to determine if and when specific merchants should try to form partnerships or develop buy buttons.

“The industry as a whole is going through a period of change,” says Boese. “Consider different options to stay at the forefront of these trends.” TT

Christine Umbrell is editorial/production associate and contributing writing to Transaction Trends. Reach her at [email protected].
SIDEBAR:

Banks Expand P2P Offerings

Just as we are seeing growth in the number and capabilities of non-bank-owned apps such as PayPal and Venmo that enable person-to-person (P2P) payments, there has been a significant evolution in the P2P offerings of U.S. financial institutions.

Most of the major banks offer P2P transactions through their mobile apps or websites, many of which are facilitated by clearXchange, an Early Warning Services (EWS) company. The clearXchange P2P network, which will reportedly be renamed “Zelle” in the first half of 2017, is owned by several large U.S. banks and works through mobile banking apps to offer P2P functions. While there has typically been a waiting period of up to three business days, or longer, for many bank P2P transactions to go through, at least three banks are now live with “real-time” P2P payments on the clearXchange network: Bank of America, U.S. Bank, and JPMorgan Chase. More banks are expected to follow suit and add real-time functionality to their P2P offerings.

In addition, EWS announced in August that both Visa Direct and Mastercard Send will be enabled on clearXchange.

Visa Direct is a payments platform designed to allow financial institutions, developers, and partners to offer secure real-time P2P payments and business disbursements. The Visa Direct platform has the ability to transfer funds within minutes to and from more than 200 million Visa debit cards in the United States, as well as to and from non-Visa branded debit cards, according to Visa. Funds are transferred into a customer’s account linked to a debit card without the need for deposit account number and routing code details.

Mastercard Send is a personal payments service that reaches nearly all U.S. debit card accounts, and enables sending and receiving funds, according to Mastercard.

Fiserv already offers Visa Direct as part of its Popmoney personal payments service. Now, EWS is enabling P2P payments on its clearXchange network using U.S.-issued debit cards through the Visa Direct platform.

“Early Warning’s partnerships with Fiserv, Visa, and Mastercard create nearly universal reach to the U.S. banked population—a critical element for customer adoption,” according to a press release issued by First Annapolis Consulting.

“We’re always looking at ways we can deliver convenient, fast, and secure payment solutions to meet our customers’ needs,” says David Godsman, head of emerging payments at Bank of America, in a Visa press statement. “By working with Early Warning and Visa, we can offer consumers more choice and greater options for faster payments.”