With payments trends going digital, instant is the new normal. As a result, there’s a real hunger for efficient and secure P2P (peer to peer) payments. In fact, 79% of Generation Z report using P2P platforms, and eMarketer forecasts overall monthly use at 52.5% by 2022. Massive upheavals like COVID-19 have only accelerated this growth.
For financial institutions, P2P alone is unlikely to drive profits. Seeking to monetize it risks driving customers elsewhere. There are simply too many competitors and free offerings in the marketplace. However, institutions can still get ahead of the trend. Enabling free and convenient P2P payments inches your digital banking platform closer to becoming a one-stop-shop for payments needs.
Your institution should aim to implement P2P technology in a cost-efficient way that rewards the investment. If you can get the most out of your P2P solution, you will strengthen customers’ relationships with your institution and its brand. The added convenience and increased customer engagement ultimately decreases the risk of deposit loss.
A Quick Survey of the P2P Landscape
From old standards like PayPal to growing juggernauts like Google Pay and Venmo, third-party payments apps continue to drive industry expectations for P2P. Hoping to capitalize on the trend, many financial institutions are investing in P2P payments through Zelle. The directory’s ability for customers to type in emails or phone numbers to make quick and convenient payments has led that appeal.
However, implementation for Zelle can be costly. And with a constantly evolving market, it’s ongoing allure is no sure thing. New developments like Secure Remote Commerce, the FedNow Service and emerging third party fintechs all promise to further change the market. A publicly consumable directory or more competing entities that provide the same value at a more competitive cost could also be on the horizon.
Until a wider range of directories emerge, banks must strive to do what they can to keep pace. Trusted partnerships that guide them in the right direction can aid this effort. Otherwise, customers will keep smaller deposits in their accounts or seek out other institutions that can keep up with technology firms.
Opportunities to Maximize Engagement Through P2P
The fragmented P2P market is a double-edged sword. Technology firms dominate the marketplace, but many P2P users already use more than one solution. Meanwhile, financial institutions have an opportunity to centralize and simplify it all by leveraging their existing digital banking presence. This is a convenient asset that competitors do not have.
Getting the most out of an investment in a P2P solution requires widespread use and engagement. To speak to a broader swath of customers, institutions should promote its many uses and potential benefits or services. Doing so will improve customer loyalty, activity and—ultimately—volume. The data from a 2019 Javelin report can help guide these efforts. Consider the following steps:
1. Meet Customer Expectations. The report revealed customer expectations in the current P2P market. Easily finding recipients for immediate payment ranked high in the surveys, lending an edge to directories. Other features like rewards for inviting friends and a multipurpose application that allowed for merchant and bill pay also ranked highly.
Younger users tend to use P2P payments more often. The most common features that drove their usage were security features (like a refund in the event of unauthorized payments), payment confirmations, rewards, transaction disputation and a few others. Notably, one of the most significant indicators of whether users under 40 used a particular P2P product was whether they knew others who used it.
2. Reach New Users First. By contrast, the report found 65% of customers over 45 were less inclined to make P2P payments regularly. This should hardly surprise, given that this age group differs from younger cohorts across payments trends. 37% reported not using automated payments for any bill and 32% write checks weekly. They also favor credit over debit and 60% chose their financial institution based on location.
But times continue to change. Health and safety concerns have added to the already prevailing trend toward digitization. This presents an opportunity for institutions to spread awareness to this older consumer group. Gift giving topped the use cases for users over 45, indicating a limited perception of the solution’s value. Behavior modifiers like rewards can help reach these customers and incentivize use.
3. Promote Underused Use Cases. As exemplified by the above, many still have a limited view of P2P capabilities. For people to get the most out of a P2P solution, they need a holistic view of how to use it and reassurance of its security.
Most already use these tools to give gifts and pay back individuals for business or social expenses. Yet, customers can also use this technology to pay rent and payroll services or to make funds from a loan or line of credit available immediately. To make these solutions as convenient as possible, institutions should enable multichannel use. That way, customers can make immediate payments with access from both mobile apps and browsers.
Making the P2P Investment Worth It
P2P money movement remains a competitive field, and the benefits of offering it are not always easily quantifiable. Selecting a cost-efficient method that incentivizes customers to use your digital platform helps you build relationships with those customers and safeguard deposit market shares.
These payments trends constantly evolve. So, take a look at our Digital Payment Trends in Banking white paper to see the latest in digital payments.
Matt Herren is the Director of Payment Strategy at CSI. With a strong focus on emerging technologies and how they apply to the financial industry, Matt has led CSI’s effort to drive innovation in the payment space. In his role, Matt has worked to enhance customer experience and helped direct innovative product offerings to increase bank profitability, allowing banks to realize industry-leading results and maximize program performance.