A larger population of smartphone-toting consumers has naturally translated into greater demand for digital alternatives to checks. While the person-to-person (P2P) payments market is still very fragmented, we’ve seen several players emerge over the past twelve months.
Aside from the incumbent PayPal, consumers have enjoyed the convenient experience of bank-based P2P solutions like Chase QuickPay and Pop Money. Meanwhile, Braintree-owned Venmo has captured the hearts of socially-engaged consumers and Square Cash has seen takeoff with consumers resistant to creating new accounts.
The field has become even more crowded with the rumored entrance of Facebook, which would be built on top of its Messenger app. For months, Facebook has attempted to push users from the messages portal within its native mobile app to the separate, flashier Messenger app, without palpable reason. The move now makes complete sense as Mark Zuckerberg and team look to assemble a large-scale inventory of payment credentials from users.
With millennials’ soft spot for social and a P2P pie still cut a number of directions, Facebook may have entered the space at the right time. One major barrier to widespread consumer adoption of existing P2P solutions has been the long and complicated configuration process for bank accounts. A large number of consumers frown at having to provide both account and routing numbers – followed by verification of two temporary deposit amounts – and ultimately abandon the task.
To side-step this point of friction, several providers have employed debit-based P2P, requiring users to simply enter debit card credentials rather than bank account information. Amongst these providers are payments-darling Square and data-hungry Google, whose solutions offer users a faster P2P experience, both in terms of funds clearing and registration. But by using the debit rails over traditional ACH, the two providers absorb all interchange fees charged by banks for processing debit transactions – which yield big losses on the service alone.
Facebook is also expected to take a debit-based approach, likely due to the same consumer pain points described above. In doing so, Facebook’s top objective is building a critical mass of users that use its P2P service. Such an accomplishment would be a revenue generator in and of itself, giving Facebook the ability to collect data on transactions, pair it with users’ social activity to create context and use those insights to market relevant products.
The end goals for Square and Google’s debit-based schemes are not quite as clear, though data also seems like an obvious motive. The two providers have similar foundations in their debit-oriented approach and e-mail-based UI but the more impressive story in just one year of existence is Square Cash, which was launched in October 2013 as an e-mail-only solution but has since expanded to app and SMS-based payments.
Square just recently unveiled a Bluetooth-enabled feature that allows users to pay others that are nearby (Venmo offers a similar feature via AirDrop). Though Facebook’s approach to P2P will be vastly different than Square’s, the social media giant will still compete with the fast-growing Square Cash app for a consumer base that isn’t fond of using multiple P2P solutions.