Person-to-person payment systems are taking off, but person-to-person payments are not.
Contrary to the marketing message behind P-to-P, the service is most popular for paying bills, not for, say, splitting dinner checks.
P-to-P has long been pitched as a way to replace cash for small personal payments, such as chipping in one's share for a meal at a restaurant. At BECU, which launched an online P-to-P payment service in late March, members make $1.5 million in P-to-P payments a month, split up among 2,500 transactions. That averages out to $600 a payment.
"The vast majority of the transactions are … not the $10 that I was splitting a lunch check with you for," said Ken Myhra, the senior virtual banking manager at BECU. "They are making business transactions."
BECU, formerly Boeing Employees' Credit Union, said the P-to-P service, which is run by CashEdge Inc. of New York, is meeting its expectations for volume but has defied its projections for the actual use case.
"It's an interesting dynamic, and quite honestly, we didn't quite expect that," Myhra said.
But even though the service is popular for bill payments, Myhra insisted that it has not cannibalized the credit union's bill-pay volume. "The type of businesses that get paid through" P-to-P "are different than the most common type set up through bill pay," he said. Online bill-pay users pay big businesses that send detailed invoices each month, while P-to-P users pay recurring expenses like rent, for which they may have had a less formal payment process, such as handing an envelope of cash to a landlord.
Catherine Palmieri, CashEdge's global head of product and marketing, said this is because people often don't consider conventional online bill-pay systems for informal business relationships — paying the neighbor for piano lessons, for instance.
"You typically think of bill pay as my car loan, my credit card payment, my telephone payment, my gas payment," she said. "It's to the major billers, and those are the bills that arrive in the mail with an invoice and a statement, whereas your piano teacher may be: your kid goes over there on Thursday afternoon with a check in his hand."
To consumers, the piano teacher's payment may be just as important an obligation as paying the telephone bill, but in their minds, "it's not so much a bill as it is, 'I know I have to send them $20,' " Palmieri said.
For this reason, even though consumers could just have easily used their online bill-pay system to have the bank mail the piano teacher a check, it simply never occurred to them to do so. But because person-to-person payments sound less formal, consumers are suddenly willing to consider it for less-formal business arrangements, Palmieri said.
"You still can pay a bill just by using the regular bill-pay service," but P-to-P "does offer the opportunity to do something else," she said. "At the end of the day, it's all money movement."
A third of P-to-P payments on CashEdge's system are recurring payments, she said, and the average payment is $282, though Palmieri said this is because some clients have placed a $500 cap on transfer amounts. Without that limit, transfer volumes naturally look more like what BECU has observed.
Myhra said that in place of a firm limit, BECU models its online transfer risk model after its model for automated teller machines — if you can move a certain dollar amount through an ATM, you should be able to do the same from a computer, he said.
In addition to the P-to-P payments, which Myhra defines as going to recipients who have shared their bank account number with the sender, an average of $425,000 a month is sent by BECU members to people who have shared only their phone number or their e-mail address with the sender.
Jack Henry & Associates Inc. has also boasted strong adoption for the P-to-P service offered by iPay Technologies, which it bought in June. In a Sept. 9 press release, it said iPay's service, which has been offered as a bill-pay feature, is used for over 96,000 payments a month at more than 2,150 financial companies. Though it did not provide an average dollar value for the payments, it said they can go as high as $10,000.
Jack Henry, which did not return calls requesting comment, said it plans to break out the P-to-P service from bill pay this year to also offer it as a stand-alone service.
Aaron McPherson, a research manager for payments at IDC Financial Insights in Framingham Mass., said that for this type of payment service, "the P-to-P moniker is too broad, and it's kind of misleading."
That said, the service itself clearly has an audience, McPherson said. Banks and credit unions "might be wrong about what the market is for this, but as long as they don't give up before they discover that, they're probably OK," he said.
What the term P-to-P really conveys to bill-pay users is that these payments can be made to someone who may not be set up to receive electronic payments through online bill pay.
However, McPherson insists there is no reason it could not also be called bill pay.
"The new technology is allowing you to expand bill pay to smaller services providers who might not have wanted to accept it before," he said.
In this way, what companies today are calling P-to-P is actually "the next generation of bill pay that is expanding it down-market," he said.
Once banks realize this and begin to embrace it, there are many opportunities for this type of payment service that would not exist for pure P-to-P.
Treating this service as bill pay, "you can say, Hey, we noticed you paid your landlord. Did you know you can also pay your grounds keeper and your nanny?" McPherson said.
These make sense, he said, because they are similar recurring payments — the opportunities to deepen the relationship are less clear when the service is focused on impromptu expenses like pizza delivery.
