Do you Venmo?

P2P payment popularity on the rise

The Hartland Hawks U10 select baseball team raised more than $1,000 selling kringles for its annual fundraiser over the holidays.

Ordinarily, each team member would collect cash and checks, and the parents might front the money to the team before the orders were delivered to customers. But Robyn Ludtke, whose nine-year-old son Mason plays on the team, used a new tool for handling payments this year: Venmo.

Google Wallet is one of several person-to-person payment mobile apps gaining in popularity. Prathan Chorruangsak / Shutterstock, Inc.

Google Wallet is one of several person-to-person payment mobile apps gaining in popularity.
Prathan Chorruangsak / Shutterstock, Inc.

Venmo is one of several person-to-person payment mobile apps that have been gaining in popularity as consumers use their smartphones for more and more of their daily tasks. A user plugs her bank account information into the app, and can directly transfer money to friends and family with the touch of a button.

“My son alone, he sold over $400 worth of kringle,” said Ludtke, 35, talent and education manager at the Waukesha County Business Alliance. “We weren’t taking the money out of our pockets and turning around and writing the baseball organization a check and then waiting for the money from the people who ordered from us. It was instant.”

“Venmo I use for paying people personally, if people in our family want to pay each other with money for something,” said Jane Trenchard-Backes, membership development at the Metropolitan Milwaukee Association of Commerce. “When you buy things online, like two hotel rooms or airfare or tickets, it’s much easier to reimburse people through Venmo.”

About one-third of U.S. consumers made a P2P payment in 2016, to the tune of about $500 billion. Half of us are projected to use the technology by 2021, according to Javelin Research. And by 2019, about $174 billion of those P2P payments will flow through mobile devices, according to PayPal.

While the concept of P2P payments isn’t new – PayPal has been around since 1998 – the use of smartphones to make the payments is fresh. Millennials like Ludtke have taken up the mantle of the cashless mobile payment, often carrying no cash and using Venmo to split the check or the electric bill with friends.

Ludtke

Ludtke

Many financial institutions have had P2P payment products for years, but the ability to transfer money to friends who bank elsewhere has not always been available. Banks have been slower to get on the P2P bandwagon, but will have to make it a priority as customers get younger, said Jack Vonder Heide, president of Technology Briefing Centers Inc., which advises banks on emerging digital technologies.

“The exercise that banks are going through now is they’re looking at account activity,” specifically how much P2P money is moving in and out of its accounts and via which services, Vonder Heide said. “How much money could our bank make on fee income based on the volume that we see?”

In a 2015 Aite Group LLC survey of 1,724 U.S. consumers, 20 percent had used mobile banking to make a P2P payment in 2014, while 16 percent had used Venmo, Square or another mobile service. And 49 percent had used PayPal, though it wasn’t broken out by desktop and mobile. That’s not to say banks lost out – 71 percent of those respondents had used cash for P2P, 56 percent had used checks and 35 percent had used a debit card.

A new effort being undertaken by many of the largest U.S. banks would rebrand their services under one cohesive name – the Zelle Network. It’s being launched through a partnership between Brookfield-based Fiserv Inc. and Early Warning, both financial technology developers.

Vonder Heide

Vonder Heide

Fiserv provides P2P payment technology to more than 2,400 financial institutions, including 14 of the country’s top 30 banks, said Mark Ernst, executive vice president and chief operating officer at Fiserv. It started offering its Popmoney P2P product in 2012.

Ernst contended banks are completing a larger volume of P2P payments than financial technology companies and that’s not entirely clear to consumers. The goal of Zelle is to change that perception, he said.

“Because most institutions are running their network inside their bank under their brand name, consumers don’t know that network extends beyond the brand outside their bank,” he said.

Another reason banks have been slower to embrace P2P networks: they can be expensive.

“Venmo loses money on every transaction and they’re struggling to figure out how they will eventually make money off this large base of users,” Ernst said. “It’s got to be part and parcel of the entire relationship rather than being treated as if it’s got to be a standalone profit center in and of itself.”

Zelle will offer two advantages over fintech applications: It’s offered by the bank itself, adding a level of trust for consumers; and the funds transfer will happen in real-time, rather than after the 24-hour lag most fintech P2P services require, Ernst said.

Murphy

Murphy

“What the banks are really in the best position to do is to capitalize on their already existing customer relationships,” said Patrick Murphy, a shareholder on the Banking team at Godfrey & Kahn S.C. in Milwaukee. “The issue with a lot of fintech companies is there’s so many of them popping up it’s really hard to know who you’re dealing with, whereas the banks are a known entity to people and they have more robust security measures.”

The speed at which fintech firms have been forming has put the more strictly regulated banks at a disadvantage, said Robert Zondag, CFO of The American Deposit Management Co. in Delafield, which handles both bank and fintech transactions.

Among consumers over the past decade, Zondag has tracked a shift of about 60 percent from writing and depositing checks to making mobile payments.

“It’s really the point of contact with the consumer that needs to be looked at,” Zondag said. “The whole premise that banks and fintechs are trying to both capture is that share of the customer’s transactions or wallet. And the less that a consumer depends on their bank for that process, the less opportunities the bank has to provide other services.”

The Hartland Hawks U10 select baseball team raised more than $1,000 selling kringles for its annual fundraiser over the holidays.

Ordinarily, each team member would collect cash and checks, and the parents might front the money to the team before the orders were delivered to customers. But Robyn Ludtke, whose nine-year-old son Mason plays on the team, used a new tool for handling payments this year: Venmo.

Google Wallet is one of several person-to-person payment mobile apps gaining in popularity. Prathan Chorruangsak / Shutterstock, Inc.

Google Wallet is one of several person-to-person payment mobile apps gaining in popularity.
Prathan Chorruangsak / Shutterstock, Inc.

Venmo is one of several person-to-person payment mobile apps that have been gaining in popularity as consumers use their smartphones for more and more of their daily tasks. A user plugs her bank account information into the app, and can directly transfer money to friends and family with the touch of a button.

“My son alone, he sold over $400 worth of kringle,” said Ludtke, 35, talent and education manager at the Waukesha County Business Alliance. “We weren’t taking the money out of our pockets and turning around and writing the baseball organization a check and then waiting for the money from the people who ordered from us. It was instant.”

“Venmo I use for paying people personally, if people in our family want to pay each other with money for something,” said Jane Trenchard-Backes, membership development at the Metropolitan Milwaukee Association of Commerce. “When you buy things online, like two hotel rooms or airfare or tickets, it’s much easier to reimburse people through Venmo.”

About one-third of U.S. consumers made a P2P payment in 2016, to the tune of about $500 billion. Half of us are projected to use the technology by 2021, according to Javelin Research. And by 2019, about $174 billion of those P2P payments will flow through mobile devices, according to PayPal.

While the concept of P2P payments isn’t new – PayPal has been around since 1998 – the use of smartphones to make the payments is fresh. Millennials like Ludtke have taken up the mantle of the cashless mobile payment, often carrying no cash and using Venmo to split the check or the electric bill with friends.

Ludtke

Ludtke

Many financial institutions have had P2P payment products for years, but the ability to transfer money to friends who bank elsewhere has not always been available. Banks have been slower to get on the P2P bandwagon, but will have to make it a priority as customers get younger, said Jack Vonder Heide, president of Technology Briefing Centers Inc., which advises banks on emerging digital technologies.

“The exercise that banks are going through now is they’re looking at account activity,” specifically how much P2P money is moving in and out of its accounts and via which services, Vonder Heide said. “How much money could our bank make on fee income based on the volume that we see?”

In a 2015 Aite Group LLC survey of 1,724 U.S. consumers, 20 percent had used mobile banking to make a P2P payment in 2014, while 16 percent had used Venmo, Square or another mobile service. And 49 percent had used PayPal, though it wasn’t broken out by desktop and mobile. That’s not to say banks lost out – 71 percent of those respondents had used cash for P2P, 56 percent had used checks and 35 percent had used a debit card.

A new effort being undertaken by many of the largest U.S. banks would rebrand their services under one cohesive name – the Zelle Network. It’s being launched through a partnership between Brookfield-based Fiserv Inc. and Early Warning, both financial technology developers.

Vonder Heide

Vonder Heide

Fiserv provides P2P payment technology to more than 2,400 financial institutions, including 14 of the country’s top 30 banks, said Mark Ernst, executive vice president and chief operating officer at Fiserv. It started offering its Popmoney P2P product in 2012.

Ernst contended banks are completing a larger volume of P2P payments than financial technology companies and that’s not entirely clear to consumers. The goal of Zelle is to change that perception, he said.

“Because most institutions are running their network inside their bank under their brand name, consumers don’t know that network extends beyond the brand outside their bank,” he said.

Another reason banks have been slower to embrace P2P networks: they can be expensive.

“Venmo loses money on every transaction and they’re struggling to figure out how they will eventually make money off this large base of users,” Ernst said. “It’s got to be part and parcel of the entire relationship rather than being treated as if it’s got to be a standalone profit center in and of itself.”

Zelle will offer two advantages over fintech applications: It’s offered by the bank itself, adding a level of trust for consumers; and the funds transfer will happen in real-time, rather than after the 24-hour lag most fintech P2P services require, Ernst said.

Murphy

Murphy

“What the banks are really in the best position to do is to capitalize on their already existing customer relationships,” said Patrick Murphy, a shareholder on the Banking team at Godfrey & Kahn S.C. in Milwaukee. “The issue with a lot of fintech companies is there’s so many of them popping up it’s really hard to know who you’re dealing with, whereas the banks are a known entity to people and they have more robust security measures.”

The speed at which fintech firms have been forming has put the more strictly regulated banks at a disadvantage, said Robert Zondag, CFO of The American Deposit Management Co. in Delafield, which handles both bank and fintech transactions.

Among consumers over the past decade, Zondag has tracked a shift of about 60 percent from writing and depositing checks to making mobile payments.

“It’s really the point of contact with the consumer that needs to be looked at,” Zondag said. “The whole premise that banks and fintechs are trying to both capture is that share of the customer’s transactions or wallet. And the less that a consumer depends on their bank for that process, the less opportunities the bank has to provide other services.”

Comments are closed.