Adoption Of P2P Payments On The Rise

The payments industry has to be prepared for new technology and disrupters to come along, and one of the most significant changes to the sector of late has been the explosion of peer-2-peer, or P2P payment apps.

Due to growing consumer demand, companies like Venmo, Drolla, Square Cash, Mango, Visa Direction and numerous others are all eager for their piece of market share, leading to a vast increase in the number of P2P apps now on offer.

Many of these relative newcomers to the payments sector have managed to give the more traditional payments providers a run for their money, and the surge in P2P payment apps doesn’t show any signs of coming to an end, but what’s is behind this?

This article will start by explaining what P2P apps are, and some of the reasons behind the explosion in popularity.

What Are P2P Payments & How Do They Work?

If you’ve yet to use a P2P app, and not entirely sure what purpose they serve, P2P apps are defined as:

“An online technology that allows customers to transfer funds from their bank account or credit card to another individual’s account via the Internet or a mobile phone.”

Money can either be debited straight from a bank account or the transaction can be made through a third-party app; the payment is then debited or credited to another individual, like a friend or family member.

The accounts are encrypted to keep the user’s details safe, however, users should only choose a P2P payment company that is PCI compliant and that has additional levels of security such as SSL for added protection. Apps with FDIC insurance can also give you added protection for your money.

Why the Rise in P2P Payments?

Although P2P apps have been around for a while, recently they have being gaining considerable momentum. For instance, research published in 2015 showed that 46 percent of U.S. consumers had already been using P2P apps to make payments.

There are several factors contributing to the growth. First, following technological advances, there has been a significant increase in consumers using smartphones and other mobile devices globally, and naturally, this was always going to lead to more consumers wanting to make payments on the go.

However, this isn’t the only reason for the move towards P2P apps. Such apps are in keeping with the on-demand services that consumers have come to expect and they suit the busy lifestyles many of us lead these days.

Also, as a press release from Aite explains, consumers want a more hands-on approach to tracking their spending – and P2P apps gives them that.

How Will P2P Payments Grow in the Future?

Aite Group stated that the P2P payments market in the United States is currently worth over $1.2 trillion. And according to Aite Group’s report, U.S. based consumers spent approximately $147 billion in digital P2P transactions during 2016 – a considerable increase on the estimated $100 billion spent in the previous year.

Furthermore, in its Mobile P2P payments in 2015: The Growth and Adoption of Mobile Money Transfers, Javelin research predicts a 180 percent increase by 2020. By the time we reach 2019, Javelin research expect “more than half of all mobile device owners will be using mobile P2P,” according to the report.

And as even more consumers move towards smartphones – and more consumers gain access to an Internet connection –  the need for P2P apps is likely to continue grow for the foreseeable future.

Companies Paving the Way

The P2P space has attracted both well-established and start-up companies. Currently, Venmo is among those leading the pack, with a record breaking performance announced in the first quarter.

San Francisco-based Square Cash  has also made considerable gains, processing more than $1 billion just in the first two years of trading, and Square has recently announced that it was to be integrated with Apple Pay, another leader in the mobile payments space.

Further, other U.S. P2P companies like the Boston-based Circle app, which was established in 2013, and Popmoney, which has its headquarters in New York, have both put in robust performances since their launch. However, success hasn’t just been limited to U.S. based P2P developers.

P2P app Jiffy has been taking Italy by storm, gaining 4.2 million users, and it’s fast becoming among the leading – if not the leading –  P2P mobile payments company in Europe. And in the UK, social payments app Payfriendz has been quick to gain recognition.

What P2P Payments Mean for the Traditional Payments Industry

The staggering success of P2P apps seems to have caught some in the traditional payments industry by surprise; the explosion in P2P has forced them to look for ways to contend with the challenges that come with the fresh competition.

Major banking institutions are joining the P2P payments trend, and recently, the likes of Citigroup and Wells Fargo came together with other high profile financial institutions to launch a rival, Zelle, which promises consumers faster and more secure means to pay.

By joining together, it’s hoped that the financial institutions can use their collective might to compete with Venmo and other challengers to traditional payments; thus far, Zelle has certainly put up a sturdy performance

Banks are also going out on their own and striving to meet the demand for P2P apps. In the States, many of the major banks like JP Morgan Chase and the U.S. bank have already launched their custom apps, And  BMO Harris has become the latest U.S. bank to join the race, with the launch of its free People Pay app, which is now open to mobile payment users.

Conclusion

P2P payment apps are currently influencing all major areas of our lives, including where we stay, how we travel and how we pay.

The rapid increase in P2P apps has led to both a challenging and exciting times for established companies and recent start-ups; P2P apps are now a central part of payment processing and seem set to remain so.

The development of new technology, a desire to find quicker, easier ways to pay, and the demand for 24/7 services are some of the factors that have contributed to the considerable exhilaration in P2P payments.

And as the adoption of smartphones and mobile devices grows, the demand for P2P payments is likely to grow further still.