26 NOVEMBER / DECEMBER 2017 Mick Oppy Vice President of Financial Institution Products Vantiv mick.oppy@vantiv.com New Entrants Cash In On P2P payment enthusiasm OPERATIONS / TECHNOLOGY Vantiv is an associate member of the Indiana Bankers Association. The peer-to-peer (P2P) payment universe is getting a bit more crowded. In June, the bank-owned Early Warning® launched its Zelle mobile app, allowing consumers to exchange funds within its existing Zelle network of more than 30 financial institutions. In addition, Apple announced the launch of its own P2P service, Apple Pay Cash, in coordination with the fall 2017 release of the iPhone’s latest operating system, iOS 11. These two new entrants join an already crowded space that includes Venmo, PayPal, Square Cash, Google Wallet and Facebook Messenger. Venmo currently has dominant market share among millennials; Zelle has captured market share due to enrollment of large banks; and Apple Cash means to disrupt both. A Growing Sector The P2P sector is growing rapidly. Mobile P2P payments are projected to rise by 55 percent in 2017 to over $120 billion in value, a figure expected to double by 2021. 63.5 million adults, nearly a third of all smartphone users in the United States, are projected to use a P2P mobile payment app monthly in 2017.1 Venmo has been the clear winner with the highly coveted millennial segment. In spite of a pedestrian payment technology, Venmo’s secret sauce is its embedded social network, which creates community around the mundane task of exchanging funds. With 42 percent of users employing P2P to request funds from friends, and 59 percent to pay friends, this social aspect has proven crucial to Venmo’s success among Gen Y.2 Owned by PayPal, Venmo currently accounts for just 7.5 percent of its parent’s total payment volume. Yet the business unit experienced a 103 percent annualized rate of growth in the second quarter of 2017 – its 16th consecutive quarter of triple-digit growth.3 However, Venmo’s rapid growth comes burdened with some challenges. As the P2P platform takes on a larger share of PayPal’s total payment volume, Venmo needs to find a way to become profitable, lest it becomes a drag on its parent’s performance. Additionally, with new competitive threats looming, Venmo faces calls to expand into new customer segments beyond its traditional stronghold among tech-savvy, social media-obsessed millennials. Apple Pay Cash Looms Apple Cash is truly the wild card in all of this. If the experience is as seamless as Apple claims, it is going to be extremely difficult to beat the experience. Consumers will have the option to move the funds back to their DDA account, but it will be interesting to see how many leave it in the prepaid purse and leverage it at time of sale. Despite several unanswered questions, Apple’s new P2P payments solution benefits from a clear distribution advantage over other platforms. Namely, Apple Pay Cash will leverage the iMessage service already built into more than a billion iOS devices worldwide. The questions are mainly around usability, as the P2P service will functionally reside within the existing Apple Pay feature, while virtual balances will be housed within a new virtual card called Apple Pay Cash. Meanwhile, users will initiate the exchange of funds within the iMessage app. This process map sounds somewhat unwieldy, and it remains to be seen how it will work in practice. Additionally, unlike popular competitive offerings such as Venmo and Square Cash, Apple Pay Cash won’t (at least initially) offer an easy account ledger or memo tracking feature within iMessage, so users will be hard-pressed to track who was paid what.
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