P2P Going the Bill Pay Way (Well, Someday...)

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9 November 2009
Following Jacob Jegher's recent post, I'd like to add some observations from the BAI conference, regarding P2P. This functionality, which has been talked about for years, is usually portrayed in "social" or "casual" P2P context (as American Banker puts it, the "let's split the dinner bill" crowd). Usage has been low, partially due to consumers' lack of awareness or of use case understanding. In fear of oversimplifying, there are a couple of systematic reasons for low usage too -- the lack of a seamless network effect (i.e., anyone can send money to anyone, without registration processes), and the lack of a direct bank-to-bank (i.e., no intermediary) transfer capability. Among the rash of P2P announcements, there appears to be 3 distinct models adopted by tech vendors to overcome these systematic barriers. The first is a bottom-up model, creating a network among bank clients -- Fiserv and CashEdge/Firethorn fall in this category. Another model is to help banks interface with PayPal, but without registration and intermediary requirements for P2P senders -- FIS and S1 appear to be taking this route. The final model is to leverage the payment brands' networks to move money directly between banks -- Obopay tried a version of this with MasterCard and ClairMail is in now in a position to support Visa's future efforts. It will take a while before we find out which model will win, or if there will be multiple models at the same time. A deciding factor will be the tricky (and expensive) matter of raising consumers' awareness and understanding of use cases. Because of this, bank-agnostic large brands (e.g., MasterCard, PayPal, Visa) with healthy marketing budgets will be in the best position to to move the market. The question is how much they're willing to do so -- as consumers are extremely sensitive to pricing, it's not clear how much revenue P2P holds for industry players (especially in comparison to traditional merchant markets). The recent wave of press releases may provide a hint of the future revenue opportunity and consequential marketing efforts. There was scant mention of consumer pricing in the releases, as most tech players will leave this up to the banks. This sounds to me like a recipe for fees initially being charged, but with eventual migration to near $0 pricing ("customer retention" being the argument to offset banks' costs...). Hmmm, on-line bill pay redux?

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