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Expert opinion

Peer-to-peer payments may be the next ecommerce trend in the US

Wednesday 11 September 2019 | 08:34 AM CET

‘As global payments erase borders for US companies selling worldwide, US merchants appear to be stepping back. But appearances can be deceiving’ Sally Baptiste, Payment Operations Group

With a focus on global sales in recent years, merchants are aligning to their new reality – International Regulations. With new regulations and Brand deadlines looming, and a two-year development calendar for most merchants, taking a rebuilding timeout is wise.

While they update systems, manage costs, juggle multiple providers, and comply with global regulations, US merchants are watching for the next major US payment trend. This time, however, they are using binoculars. In the last major payment type trend, merchants jumped to install mobile wallets such as Apple Pay and Samsung Pay. In their next steps, merchants are looking for payment types that bring larger, committed user bases and new markets. And they are becoming aware that their next market may not be overseas – it may be right here at home with Millennials.

Quietly building their own trends, these younger US buyers have characteristics that have been overlooked. Forecasters note they will be the first generation to achieve lower levels of financial success than preceding generations. Millennials are hit with record levels of student loans and housing costs, making them very aware of every dollar spent. Furthermore, they spend in groups, combining their limited resources, and in doing so, they have empowered Peer-to-Peer (P2P) payment types.

Not willing to accept lower quality, younger buyers are using tools such as Venmo and Zelle to fund areas of the market not previously tagged as ‘pay-type-impacting’. Combining funds to execute one rent payment, for example, may take four different transactions – transactions that Visa and Mastercard have eyed for decades – and it is something that Millennials have achieved in just a few years using the P2P tools that were originally marketed for dinners out.

These P2P payment types are not new, especially when you consider this path was launched almost 30 years ago. Universal (almost) smart phones in the US gave developers a way to create the ease-of-use tools which moved these transaction types off card-backed and into bank-backed arenas, regardless of device type. In 2018, some estimates noted 80-90 million users engaged in P2P transactions through these apps, so now it’s a race to obtain (and retain) the growing user base.

In distinguishing themselves from the pack, P2P applications are using three approaches: Location, Convenience, and Audience. Success in location has been critical as services such as Zelle (imbedded in many mobile banking apps) and Messenger P2P payments (within Facebook) leverage persons already within their reach. Along the same location arguments, Apple Pay Cash, Google Wallet, and other device-centric services are trying to take advantage of mobile usage to become the P2P service of choice for their customers. Of note here is the recent breakout (Q4 2018) of Apple Pay Cash which actually loads your incoming money to a card within your Apple Pay wallet to be used as a pre-paid card.

Tying back to a card normalises this payment type and opens the spendability of this payment type, but not more than the stand-alone apps that drive funds into your bank account, so Apple is mainstreaming the P2P results but long-term adoption is far from guaranteed.

The next adoption approach is Convenience, but that’s not an isolated approach. While the original ease-of-use path was adopted, a few other areas were impacted – Security and Feature Expansion. The fewer steps needed to send a payment, the greater the initial adoption… Until you send money to the wrong person and cannot get it back.

Security of the service generally and of each transaction specifically adds back the complexity that application developers worked so hard to remove. Users are growing more aware of this gap, especially as reporting of these issues increases, so apps like Venmo, Cash App (by Square), and Zelle’s standalone version are expanding security as well as contact confirmation prior to remittance. Additionally, supporting a Convenience mode as they reduce your interface with other applications, P2P apps are adding messaging, emojis, activity feeds, and more as features they feel will add fun while reducing overall clicks.

In a third approach to market acquisition, some services are crafting products tied to a desired Audience. Services such as Dwolla (targeting small transactions) and Payoneer (for freelance services) are targeting specific use-cases in an effort to tie up a user base and smaller market – and theoretically they would grow out into the larger market. The most extreme market success for a targeted community is Venmo as they resonate with Millennials – the largest user group for stand-alone P2P services sending an estimated USD 1 billion each month. With support from parent company PayPal, Venmo is now approaching merchants for ecommerce checkout placement. With their larger user base and device ubiquity, Venmo could be an attractive payment type in the future. For Venmo, it would be a way to monetise the payments they have been facilitating for years – and bring in profit.

In the meantime, US merchants are waiting to see where or if P2P payment types could effectively bring in new sales. Consumers are viewing P2P as a growing part of their financial arsenal – for Millennials, every bit as important as cash. Device-driven payment types are entering late in the game, but is literally at the fingertips of the desired market. And the rest of the world sits back wondering why it took the US so long to get this far.

This editorial was first published in our Payment Methods Report 2019 – Innovations in the Way We Pay, which provides a comprehensive overview of the up-to-the-minute trends, updates, and innovations in the payments space worldwide, depicting the key developments in the way people pay.

About Sally Baptiste

Sally Baptiste has 30+ years professional experience with some of the largest US ecommerce acquirers. As a leader at Chase Paymentech, then a Senior Business Manager of payments for AT&T, she was employed as the payments expert for McAfee. With a Master of Business Administration degree and Payment Card Industry Professional certification, she now co-owns her own consulting group of payment experts.

About Payment Operations Group

Payment Operations Group is a consultancy of payment professionals with over 40 years’ combined experience in the payments industry – from acquiring and ISOs to issuing and merchant perspectives. Our focus is on educating our clients with our end-to-end approach to payment processing, helping them navigate the complex ecosystem, and strengthening their position in their chosen processes.

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