Mobile P2P payments encompass much more than simply splitting the cost of a pizza. With an annual transaction volume of more than $50 billion, P2P is becoming a major influencer in all parts of the payments world. Here are 4 key P2P trends that are spilling over into merchant payments:
1. Ease of Use - P2P payment apps are designed for a mobile first audience, and these consumers demand apps that are quick, intuitive and frictionless. After all, if it’s not easy to use, today’s consumers won’t stick around. Developers have paid attention, limiting the amount of hunting and pecking required to enter data on a tiny smartphone screen. With most P2P apps, users set up their account with a linked debit card or bank account. After that, to transfer money to someone else, all that’s required is to enter an email or text, or simply click on a member’s name. Ease of use has been a crucial feature in consumer adoption and increased market share.
What does this mean for businesses? Consumers expect transactions to work right and work fast. We’re an instant gratification society, and it doesn’t take long for delays to erode a shopper’s goodwill. As a response to consumer frustration to molasses-slow EMV transactions, card issuers responded by sharply cutting EMV transaction times from 15 seconds just a few years ago, to less than 3 seconds now. That’s great progress for retailers.
On the online side, things don’t look quite as rosy. 22% of e-commerce shopping cart are abandoned due to site crashes during checkout, and 8% are dumped because of dissatisfaction with the payment methods offered. Clearly, e-commerce has some work to do. PSPs will have to remain committed to facilitating quick, reliable payments for retail and online merchants as payment forms continue to expand in the future.
2. Instant Gratification - Consumers can make quick P2P payments wherever and however it suits them - from using a stand alone app such as Venmo, or during a messaging session with a friend on Snapchat. P2P platforms have made their fame as a quick and easy way to send money, but there’s an interesting dichotomy in this time frame. Completing a transaction is instantaneous from the sender’s end, but recipients may wait up to 72 hours to receive their funds. It takes time to transfer money into bank accounts, especially when weekend days are involved. Consumers grumble about this lag time, but so far they have accepted it. After all, those are the rules, and the system (usually) works as expected.
What does this mean for merchant payments? Consumers expect things to work as they should. They have no tolerance for delays caused by inferior software design, poorly functioning POS hardware, or merchant error. It’s important to provide merchants with user-friendly, reliable and effective POS systems, and to make sure online shopping sites are updated and efficient.
3. Debit Dependence - While credit cards form the majority of retail transactions in the US, the situation is flipped in P2P payments. Most P2P platforms are based on debit to debit transactions, or on bank account funding. It’s a disadvantage for consumers to use credit cards as their funding source, as there is usually a charge in doing so. For instance, Venmo is free for debit or bank account transfers, but charges 3% for credit card funding.
Among consumers age 18-24, the target market for P2P payments, debit card preference extends beyond P2P. Debit cards are more popular than credit cards for this population. This is great news for business owners, as merchants reap the benefits of lower interchange fees. And as this market ages and gains income, debit-based retail spending may continue to increase.
4. Spending Options - The P2P market is loaded with options, from stand-alone apps to payment features embedded within social platforms. Consumers have the ability to transfer money using their bank account, debit card or credit card - whatever is at hand and convenient. In the retail space, consumers increasingly use a wide variety of options for payments, as well. No longer do people default to their “favorite” credit card at checkout. The average American owns 3.7 credit cards, plus debit cards, store branded cards, a PayPal account, and more. Consumers are being more mindful of payment choices at different venues - to gain store loyalty rewards, build credit card promotional points, or use stored account value. To stay relevant, merchants must offer consumers the option to pay however they wish.
Payment service providers have an ever-changing path ahead of them. There is a continual need to work new payment methods into their POS portfolios, and to develop platforms that accommodate consumer priorities. Considering the continuing growth and profitability in electronic payments, this investment will be well worth the effort.