Person-to-person (P-to-P) payments have received little attention in recent years as mobile payments basked in the spotlight. Thanks to Google's (GOOG) new Gmail money transmission feature for consumers, at least some attention is shifting back toward personal payments. The threat posed by Google will put the onus on banks to deliver the ultimate P-to-P payments experience, which only they can provide.
First off, in the ideal P-to-P payment transaction, a customer would send money using simple contact information for the recipient. The recipient would collect the payment with a click and not need to deal with account and routing numbers. JPMorgan Chase (JPM) offers such an experience, but only when both the sender and recipient hold accounts at the bank.
When the sender and recipient use different banks, the P-to-P payments experience is more tedious for the recipient, who has to enter account details to receive funds (for the first time). Google's P-to-P payments feature will also require this; users who have not set up Google Wallet will have to do so to move money they've received into bank accounts.
Second, personal payments sent through Gmail will go toward users' Google Wallet balances, not directly to their bank accounts. It's money that any financial institution would rather have in its hands than tied up with Google. Consumers feel the same. But more often than not, they forget to move the money into their bank accounts and leave it with the middleman for an extended period.
If Google Wallet becomes a popular payment channel for online shopping, akin to PayPal, Google would also play a role in disrupting interchange fee revenue.
Finally, there are always security risks involved when consumers provide bank account details to third parties. With Google Wallet, someone can send money with a simple email. A hijacked Gmail account is primed for a cybercriminal, who'll find a way to empty out a customer's account. We all know it's common for someone to stay logged in to Gmail when stepping away from the computer.
Sure, Google can strengthen its authentication protocols, but why leave it to others to secure customers' funds?
The most seamless and secure P-to-P payments experience should be offered by banks, not anyone else.
ClearXchange, the P-to-P payments service backed by Bank of America (BAC), JPMorgan Chase and Wells Fargo (WFC), has the right idea in seeking to eliminate the likes of Google Wallet and PayPal from the personal payments game.
The exchange is a P-to-P payment network that allows customers of member banks to send and receive payments using just an email address or mobile number: the ultimate P-to-P payment experience.
Unfortunately, the exchange's only members are the same three institutions that founded it in 2011. With more than 7,000 U.S. Federal Deposit Insurance Corp.-insured institutions in existence, it has a long way to go.
Google's P-to-P payment feature is a wake-up call that the time has come for ClearXchange to start getting all those institutions signed up.
Simon Zhen is a financial writer and research analyst for MyBankTracker.com, a website that features consumer bank reviews, personal finance articles and bank product comparison tables.