Consumers make an estimated 3 billion noncash person-to-person payments a year, the majority of which continue to be made by paper check.

The time is right for the digital transformation of these payments, and three trends have made moving person-to-person payments to the lower-cost online and mobile channels feasible:

• Consumers now prefer the online channel for financial management. There have been sharp increases in online transactions throughout the last decade, and research from the American Bankers Association found that consumers would rather use the web to manage their financial relationships than any other channel.

• Mobile devices have created a ubiquitous and immediate channel for financial transactions. The proliferation of smart phones and mobile applications is fundamentally changing the way consumers interact, with strong implications for financial services.

Gartner has predicted that by 2012 the No. 1 use of a mobile application will be to transfer money, and mobile payments also were among the top 10. Mobile devices provide a compelling vehicle for personal payments, putting the service into the hands of consumers anywhere, any time.

• Social networks have exponentially expanded personal digital interactions. The advent of social networking sites like Facebook and Twitter has increased digital interaction between consumers, creating a unique opportunity for the digital exchange of money. In addition to these trends, there is a clear readiness among consumers to use person-to-person payment tools. In 2009, Fiserv surveyed more than 1,000 consumers on their attitudes about online personal payments. The results bode well for banks:

• More than two-thirds of consumers are interested in using an online personal payments service. This level of interest is similar to the early days of online bill payment, which is now used by more than half of all online U.S. households.

• Not only do consumers like the idea of online personal payments services, they would use such a service multiple times each month. The surveyed consumers said they would make about three online personal payments a month, which could dramatically reduce the volume of paper payments in the industry and increase online consumer interactions and cross-sell opportunities.

• The most significant survey finding was a strong consumer preference for conducting person-to-person transactions through a financial institution versus a third-party site.

Almost two-thirds said it was important for these services to be offered by their bank and three-fourths said it was important that a personal payments service leverage their existing checking account for both sending and receiving money, rather than having to manage payments through a third-party holding account.

Banks can derive direct advantages from offering a person-to-person payments service. The most obvious advantage is cost savings. According to TowerGroup, financial institutions spend more than $250 million a year processing noncash person-to-person payments, most of which are made via check.

By transitioning these paper payments to electronic payments or transfers, financial institutions can gain solid margins. Also, personal payments offer a potential revenue opportunity, as consumers have indicated a willingness to pay for the transactions.

Finally, as consumers perform more person-to-person payments it will further cement their relationship with the bank, increasing retention and satisfaction.

Banks and consumers will benefit from a person-to-person payments model that places a premium on the user experience, delivering a convenient, secure and fast service. Each of these attributes can most easily be enabled through a large network of financial institutions that connects consumers directly to one another.

The ubiquity of online and mobile channels, the rise of personal digital interactions and consumer desire for convenience have created an environment in which digital personal payments will grow, and financial institutions that are prepared to offer these services will reap benefits.