Person-to-Person Offerings Proliferate, Extend Service, Protect Turf
BECU went live on March 20 with person-to-person payments and since then has moved approximately $700,000 for about 5,000 newly enrolled users.
That pales in comparison to PayPal's $21 billion from more than 84 million registered accounts in the first quarter of 2010 alone, but it's a start.
BECU and dozens of other credit unions are jumping into the P2P fray not because it's profitable necessarily (many aren't even charging for the service, although they pay for using the ACH payment rails) but because they very well may need to.
"Members have been asking for this for a while, and it's important for us to offer these kinds of features and functionality, especially in the mobile channel, if we're going to keep them engaged in our organization as their PFI [primary financial institution]," said Howie Wu, the Seattle credit union's vice president of virtual banking.
BECU is using the Popmoney service from CashEdge, which he said differs from PayPal from the member perspective in a number of ways.
"They're kind of a warehouse for money. They take the funds out and credit the receiving party before the funds are moved, and you have to establish an account with them. With us, you don't have to have anything but a phone and routing number, and if the recipient is a BECU member, you don't even need that. It's automatically deposited," Wu said.
Other major payment processors offering P2P include FIS, which has partnered with PayPal for its offering, and Fiserv Inc., which is preparing to launch its own ZashPay service.
Fiserv said its service, the latest iteration of its CheckFree model, differs from the others in that while, it, too, has an optional public site and typically requires nothing more than the recipients' e-mail address or mobile number, it allows recipients to send money back as well as receive.
One thing all these services have in common is meeting credit unions' determination to retain their status as their PFI and, in a broader sense, to restore the traditional role of banks and credit unions in the payments world.
That's the view of Paul Schaus, president of CCG Catalyst, Phoenix-based consultants to credit unions and banks.
"Financial institutions have always had the monopoly on payments and only recently have third parties gotten into the payment space," he said. "It's a perceived value.... P2P payments are the smallest segment of the market compared with business-to-consumer and business-to-business...but it's what consumers expect."
"If you go to the grocery store, the perception is you'll find fresh food there. When you go to your financial institution (regardless of the channel) you expect to be able to do payments," Schaus said.
The perception also is one of safety-people are assumed to be more comfortable executing payments through their bank or credit union-as well as the convenience of keeping financial relationships under one roof, industry participants said.
And there remains the competition.
"There are so many people getting into payment models now-PayPal and Apple and contactless payments and so on-but members really trust us for their financial needs and they don't want to have to go out to third-party vendors," said Mike Salerno, manager of e-services at $5.1 billion America First CU in Utah.
His credit union plans to launch Fiserv's ZashPay service this summer. "It's fast and easy and you don't have to do a lot to set someone up as the recipient. I think it's going to be as big as bill pay."
Erich Litch, the man in charge of the Fiserv offering, agrees that market is relatively small but full of potential.
"The actual number of P2P payments you actually see going through PayPal are very small," said Litch, senior vice president and general manager of consumer services at Fiserv in Brookfield, Wis. "In this country there still is a very significant amount of personal payments made to schools, babysitters, colleagues and community members of all kinds in cash."
"We don't really believe it's going to stay paper-based and that the market is really demanding a more seamless, easy way to get money from person to person, and that's why we're offering this solution," he said.
The timing also seems right, he said, because while P2P electronic volume is relatively small compared to business-to-business and person-to-business, for instance, "interest is extremely high." He pointed out that 60 credit unions already have signed up and that others are actively evaluating the legal and regulatory issues involved before committing.
Thomas Mercer operates a medical clinic in Seattle and uses BECU as his primary financial institution. He's also a first adopter of that $8.9 billion institution's new P2P service and uses it to, among other things, pay his nanny.
He said he appreciates the service and expects it from his PFI but said he's concerned about the lag time between sending and receiving.
"I pay on Monday and she doesn't get it into her account till Friday while it's sitting in my account most of that time. That mystifies me," he said, citing his experience with instant P2P in Europe.
"I guess where I'm coming from is that this is the age of the Internet, and it should be possible for me to take money out of my account and put it in someone else's account with some safeguards, instantaneously. Businesses do that. I should be able to as an individual," he said.
Wu, the virtual banking vice president at BECU, said the big credit union expects to offer next-day capability by the end of this year.
Litch at Fiserv said both his operation and CashEdge use ACH channels but said ZashPay payments should be generally next day and if not, then within three days.
"It depends on how you manage the risk," he said. "We're initiating the debit and credit instantaneously while they use more of a credit and hold."?The new systems' ultimate ability to help preserve the stickiness of PFI relationships may be the flexibility they add, said Andy Schmidt, global payments research director at TowerGroup in Needham, Mass.
He said unlike PayPal, offerings such as ZashPay can offer the flexibility to recall a payment if the other party can't accept it through that channel.
"Plus, the bank or credit union has the flexibility to dictate the price of the transaction, whether to make it free or at a minimal cost," Schmidt said. He said he expected to see P2P often offered as part of an overall relationship, much like bill pay is now.
Schmidt also said that credit unions in particular may find their end users not only expecting the service, but expecting it for free, "because they tend to have a higher level of customer service expectation than any of the other banking markets."
"But will it cause any erosion of PayPal's market? That'll be interesting to see," Schmidt said. "If it's already part of the online banking portal and especially if it's mobile-to-mobile, too, instead of just PC-to-mobile, logic would dictate that you would see some sort of pickup from PayPay's normal traffic," the TowerGroup analyst said.
He added, "The United States writes more checks than any country in the world, about 75 per person per year if you include businesses and consumers. The challenge is going to be one of adoption."