Our Viewpoints

Our Viewpoint

Person-to-Person Payments: Get on the Bandwagon or You Might Miss the Boat

October 10, 2011

Not too long ago, we defined smart phone owners as young, technically savvy people who didn’t mind spending hundreds of dollars on the latest and greatest gadget. Today, all of that has changed. The availability of bandwidth coupled with the proliferation of affordable, easy-to-use smart phones has created a mobile society, with every age group and demographic getting on board. The number of smart phone users has now surpassed the number of feature phone users this year, with adoption numbers climbing to 1 billion by 2014.

With this rapid adoption comes a visible surge in the use of self-service channels. More than 52 percent of adults now bank online. Bill pay is on the rise. People want the option to bank, pay bills and manage their finances whenever they want – from the comfort of their couch or during their commute back home.

The next evolution of self-service is person-to-person (P2P) payments, the ability to transfer funds between one person’s deposit or savings account to another person’s deposit or savings account. It seems like a small thing, but it brings a big opportunity to financial institutions, ranging from fee income to enhanced consumer loyalty.

While it’s true that P2P payments have been around for more than a decade, the adoption rate has grown substantially over the past few years. According to Javelin Strategy, 44 percent of U.S. consumers reported making at least one online fund transfer in 2009, up from 27 percent in 2008. Projections indicate that, by 2014, 60 million U.S. households will use P2P to transfer money.

Although these numbers alone are reason enough to consider a P2P offering, here’s one more: if you don’t provide this service, there are other options, including unregulated electronic payment companies that will.

Now, more types of companies – from social networking to search engines to electronic music sites – are beginning to offer their own flavor of these electronic payment options, including P2P. Wouldn’t you rather your customers and members come to you for any service related to finance?

Some institutions have chosen to partner with a P2P intermediary whose brand is promoted directly to the consumer, at the expense of the financial institution’s own brand. In these instances, the financial institution is doing little more than raising up the intermediary’s brand, ultimately setting the stage for complete disintermediation from the payments stream and creating the potential for your customers to move other services to these businesses. Is this really the best approach in an industry where customer loyalty and retention are so critical to success?

The good news is, adding your own integrated P2P option to your Internet and mobile banking solution does not have to be risky, complex or expensive, if you make the right choice. Just make sure you look for a solution with the following characteristics:

Convenience: Your customer or member should be able to send money or request payments via text or e-mail from a computer or mobile phone, through a secure login with your institution. These funds are automatically transferred from account to account via ACH. With a non-bank electronic payments provider, the receiver has to get those funds from the provider into his or her institution.

Ease of Enrollment: Your customer or member shouldn’t have to worry about a complex enrollment process. Look for a solution that minimizes or completely eliminates enrollment processes.

Secure, mature technology: Multi-level risk management and fraud prevention processes should be built into the application, including micro-deposit withdrawal verifications during account enrollment. As with any electronic channel, there are security concerns. Make sure your provider has proven security protocols in place.

Back-end support: Your solution provider should facilitate all back-end ACH processing on behalf of your institution, as well as transaction handling and follow up. Your institution shouldn’t have to hire extra personnel or redistribute work to add this feature.

Deployment Flexibility: The solution should be capable of being integrated with your existing Internet banking and mobile banking solutions, or it should have the ability to stand alone.

In a world where smartphones are everywhere and almost every generation is using self-service channels in all forms, institutions have to stay in stride with the trends, or risk falling behind. Keep your customers and members – keep them happy – and keep your brand integrity along the way.


Tom Berdan
Vice President, Market Development

Tom Berdan capitalizes on his 25 years as a banker and 15 years in the banking software industry, using his expertise to serve as vice president of market development for D+H where he manages industry research and outreach. Prior to that, Tom served as vice president of product management where he oversaw D+H product roadmaps, including core systems, branch automation, self-service and business intelligence. Tom holds an MBA from the University of South Florida, Tampa, and a Bachelor of Business Administration from the University of Wisconsin, Milwaukee.