P2P payments Gimmick or Gizmo?

January 20, 2017 | Sam Valdes

For most tech-savvy consumers, the mention of P2P (person to person) payments may conjure up images of free payment services prompting consumers to register to operators’ wallets or e-money accounts – typical such services allow consumers to split restaurant bills or pay back money they have borrowed from friends using their mobile phones. However, the emergence of conversational commerce has led to platforms like WeChat, SnapChat, Facebook and other messaging platforms lining up with the likes of Alipay, Google, PingIt, PayM and Venmo to offer P2P payments as a part of commercial conversations between consumers and merchants.

In reality P2P payments are transforming into a tool capable of supporting many applications and use cases. Part of the reason behind the proliferation of P2P services is the unique selling proposition of the mobile device that allows sensitive payment account details to be hidden behind a public identifier such as a phone number. The rest of the momentum can be attributed to an asserted drive to make P2P payment a viable online payment option: conversational commerce has provided additional breadth to online commerce, allowing an interactive experience to naturally end in a financial transaction. The response from the messaging platforms has been to include P2P payment as part of their service… and then to expand them to “traditional” e-merchant payment: some messaging platforms (like WeChat) have gone as far as allowing P2P payment via a messaging account through the provision of dedicated payment buttons at online checkouts, missing out the conversation entirely. In summary, the increase in P2P activity has been fueled by the realisation of its commercial potential: merchants are accustomed to paying acceptance fees. If P2P payments provide merchants with better “value for fee”, this can only help to increase the growth of digital commerce.

P2P products can be launched today using Stored Value Accounts (SVA), Bank Accounts, debit and credit cards; however, in Europe, Payment System Directive 2 (PSD2, due for roll out in 2018) will be a P2P accelerator. Payment service providers will be able to trigger a payment directly from a user’s bank account; they will also be able to check that the consumer has the funds to pay and use this knowledge to offer the merchant payment indemnity. Also, if you add the fact that a payment transfer cannot be stopped once initiated, merchants have a powerful reason to accept P2P payments as they are almost as good as cash.

Then the next question is: if mobile payments intends to cover all our payments situations to our friends, to our merchants, to our service providers, are we seeing the silhouette of a cashless society? An example of a determined attempt to move towards cashless is taking place in India. The central government has undertaken infrastructure projects like the Unified Payment Interface (UPI) that provide a standard interface over which payment service providers can connect, allowing cross account P2P services to be delivered. The Indian government is so committed to this initiative that they have discontinued the issuance of high value notes, forcing consumers to adopt electronic payments tools such as mobile wallet based P2P payments for high value purchases.

Our conclusion is: infrastructure, regulation and new commercial business cases have transformed P2P into a real payment method, transforming it from gimmick to a must-have gizmo. If the various P2P offers become fully interoperable (which is a major challenge in its own right), P2P payments may become a multi-purpose service available to all, further reducing the playground of cash payments.

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