Banking UP

Bump, POPmoney and Buxter are a few of the person-to-person (P2P) money transfer services introduced recently. They are preceded by a long line of failed attempts to beam money from one person to another that I have witnessed since my days in the smart card industry in the mid-90’s, when UK-based Mondex attempted chained electronic payments from an individual payer to the next.

As a particular category of payments, I am prepared to declare that P2P is hopeless, at least in the Western world.

There is no shortage of brilliant minds at PayPal, Obopay, Cashedge, Click & Buy or other market players jumping into P2P. It’s just that, when one of the two P’s is not a merchant trying to sell something to the other P, there are very few realistic use cases. And the barrier of requiring people to install software or sign up and remember a username and password is too high for most people, however cool the new P2P payment system may seem.

Even in the hyper-connected world of “Generation Y” consumers (teens and 20-somethings), I Owe You’s are usually settled with good old cash, and other modes of payment remain too infrequently used to justify new businesses.

At Plastyc, we have tens of thousands of customers using our more innovative features, such as suspending a misplaced card from a cell phone or sending paper checks to their landlord via our virtual checkbook. But our free, ultra-accessible Facebook P2P service for our UPside Visa cardholders is another matter. The service does not even require that the recipient of the money be a cardholder to start with, as we automatically offer him or her a new card to receive the money, if needed. The truth is: we have very little traffic with that service as compared with other features.

When I asked my own 20-year old son why he was not using it, he shrugged the question off as almost irrelevant: he buys online a lot, but he never has to send money to his friends.

So I can only imagine how little traction service providers may have when they charge for P2P money services, require more than just logging into a Facebook account, and perhaps insist on people installing an app on a mobile phone.

If one of the P’s is a “pseudo merchant” (over-used example: the piano teacher; more exotic example introduced recently by Square: the local glass-blowing artist), it’s a different story. Then we’re back into retail payment scenarios with the need for charge back rules and security compliance, which both require a trusted third party in the middle to ensure payment and resolve disputes.

If the two persons are in different countries, we are venturing in the world of international remittances. This is a huge market. But it is not for the faint of heart, because there are strict money transmitter licensing rules and anti-money-laundering regulations to comply with. There’s also a need to solve the “last mile” problem of making sure that the received money can be spent easily, usually in cash. Everybody wants to eat Western Union’s lunch in this market, but this will be an uphill battle.

Now, here is an example of a genuine P2P payment scenario that would make a difference and produce decent transaction volumes inside the US: parent-to-student allowances or emergency funding when the student is a few hundred miles away from mom and dad.

The US has 17.5 million people aged 18-20 who are too old for teen prepaid cards and too young now for their own individual credit card, since the CARD Act took effect last month.

Here are the issues and requirements for servicing these people:

• The transfer should not take days. At most a few hours: “Mom, my car broke down late last night and I need to get it towed to the garage this morning…” So bank transfers via ACH are out.
• The student should be able to spend the money in the brick-and-mortar world. Joe’s Towing does not accept PayPal.
• If Mom’s credit card is the source of transfer, it should really be Mom’s card, not someone else’s, which is difficult to verify because Mom probably does not live on campus and may have a different last name.
• If money is needed more frequently than in emergencies, then having both sides of the transfer walk or drive to a money transfer retail location like those operated by Western Union or Moneygram is too inconvenient and costly.

Solving the parent-to-student payment case is not as easy as it sounds. But because this is one of the few problems big enough to support innovative solutions, I expect new services to emerge soon to serve the Parent-to-Student (P2S?) market.