Friday, January 15, 2010
On January 6, American Banker published an article entitled Mobile Transfers Taking Aim at Cash Payments. It was really an excellent article on some of the new mobile peer-to-peer (P2P) transfer offerings coming to the market in the near future. The article also outlined some of the pricing strategies currently being tested or implemented at a number of financial institutions.
Many of you have heard me speak on the future of cash and have heard me say that the only real threat to cash on the horizon is contactless payments. Cash is primarily used for small purchases and contactless payments are meant specifically for small purchases. You’ve also heard me say that it will be 3-5 years before the infrastructure and pricing is in place to make any real dent in cash usage and I still believe that.
I suppose that one could start a “cash threat” list by adding mobile P2P transfers to contactless payments. P2P transfers are an extremely useful tool and are already in place in much of the world – and not just via PayPal. When I moved back to the US from the UK in 2007, I was shocked that I was unable to move money from my account to another person’s account through my bank. After being able to do it for 2 years in London, I just assumed that it would be deployed in the US when I returned. But no – we’re still talking about it and trying to figure out the best deployment method while the average consumer is using PayPal to do exactly what we keep talking about.
There are two primary issues to be worked out. The first is determining which accounts to use to move money. Some services require you to set up separate accounts that are funded by a bank account to facilitate the transfer. The receiver also has a separate account from which the money can be moved to their bank account. The good news is that, according to the article, we’re on track to take care of this problem by eliminating those middle accounts and going directly between bank accounts.
The second issue is on pricing. There has been a lot of talk about the tolerance of consumers to pay for P2P transfers. I believe that this is wishful thinking. For consumer to business, sure, perhaps the merchant will be willing to absorb some charges. But consumer to consumer? We’re all consumers. Why would we do that?
If you lose the March Madness pool (yes, my mind is already going there) at the office, will you be willing to pay a surcharge to send money to the winner? If you are paying the babysitter or are paying your brother back for picking up takeout, will one of them be willing to pick up the small fee or are you willing to pay it? Or more likely, will you just give him/her a check? Or pay in cash?
As long as there are free payment mechanisms, fee-based P2P transfers don’t stand a chance for widespread uptake. And as long as that’s the case, the threat to cash is minimal. And don’t even get me started on the lack of anonymity….For further reading:
"Businesses will benefit from mobile payments", Chris Harnick, Mobile Commerce Daily, January 15, 2010
"Barbarians at the Gate: The Coming Disruption of Retail Banking", Patrick Gauthier, January 12, 2010
"Mobile payments for virtual goods to grow exponentially in 2010", Dan Butcher, Mobile Commerce Daily, January 5, 2010
"Mobile Payments: A White Paper", Microsoft and M-Com, September 16, 2009
"Mobile Payment", Elham Ramezani, June 2008
"Mobile Payment Systems and Services: An Introduction", Mahil Carr, March 2007