Person-To-Person Payments Have Become Table Stakes for Institutions Looking to Attract and Retain Younger Customers

PAYMENTSSOURCE ISSUES + ACTIONS P2P Payments: Driving Customer Engagement

Person-to-person payments have become table stakes for institutions looking to attract and retain younger customers. The service may also be one of the keys to keeping big-tech insurgents like Amazon at bay.

FOR RELEASE MARCH 2019 PAYMENTSSOURCE ISSUES + ACTIONS

P2P Payments - Driving Customer Engagement

INTRODUCTION The continued strong growth of domestic person-to-person (P2P) payment services over the last few years has had a material impact on how the banking industry, and the vendors who serve them, are approaching P2P services. In the past, P2P payments were considered by financial institutions to be an inconsequential service that generated little revenue and therefore were largely the domain of nonbanks such PayPal, Venmo and Square.

However, there was a structural difference in how nonbanks approached P2P payments. Companies such as Venmo and Square preferred to offer their services using mobile apps first, while banks approached P2P payments in a similar fashion to traditional bill pay, hiding P2P behind a tab in online banking. This mobile-first orientation allowed the nonbanks to easily build up networks that bore a closer resemblance to social networks than to mobile or online banking.

The main catalyst for interest in P2P payment services among financial institution executives has been the rapid adoption of Venmo’s P2P service by millennial consumers. In the fourth quarter of 2018 Venmo processed more than $19 billion in P2P payments and did $62 billion for the full year.1 Gaining a better understanding of the value of offering P2P services and what impact it could have on a banking franchise has become increasingly important to executives.

As the financial services industry begins to address this P2P gap and the needs of younger consumers who desire a mobile-first approach, there are still many questions that remain for bankers to understand. For example:

• Will offering P2P payments increase customer engagement for a banking franchise and thereby reduce customer attrition?

• Can offering P2P services lead to more product cross-sales?

• What is the potential that P2P payments could cannibalize revenues from profitable services such as wire transfers or checks?

• How should a financial institution promote its P2P services to customers?

• Should a financial institution allow its customers the ability to make a P2P transaction on its mobile app without having to login?

• How should banks and credit unions address the increased potential for fraud with real-time P2P services such as Zelle?

• What can be learned in fraud mitigation strategies and tactics from existing P2P payment services such as Western Union, MoneyGram, Venmo, and Square Cash?

• When should a financial institution require two-factor authentication for P2P payments, for example when sending money to a recipient for the first time or when a transfer exceeds a certain dollar amount?

To provide insights on the experiences of financial institutions that have deployed P2P services, as well as explore the obstacles preventing others from doing so, SourceMedia Research surveyed 56 bank and credit union executives during January 2019 to gain their perspectives.

1 https://www.paymentssource.com/news/paypals-venmo-problem-it-moves-money-but-doesnt-make-any

ABOUT THIS REPORT

Issues + Actions reports are produced by the editors of American Banker and PaymentsSource. The report examines the thoughts and opinions of senior financial services executives regarding the importance of P2P services and their future plans to offer it.

Each report provides exclusive and authoritative analysis and insight on a topic of vital interest to the operation of a banking company. The target readership includes senior executives, line-of-business leaders, marketers and technology providers seeking deeper, more actionable industry perspectives, whether as clients or competitors. The reports are available for purchase singly or by subscription.

This report’s primary narrative was written by Michael Moeser. American Banker is the leading resource for commercial banking professionals and PaymentsSource is the leading information resource for payments professionals. American Banker and PaymentsSource are SourceMedia brands and support a full line of professional content as well as research, data and conferences.

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KEY FINDINGS

• Two thirds (66 percent) of financial institutions surveyed currently offer or are in the process of implementing a domestic P2P payment service. Despite the very public ompetition that legacy banks, card networks and their financial services vendors are having with non-bank fintechs such as Square and Venmo, fully one third of respondents don’t offer a P2P service, representing a potential customer attrition risk. However, almost 60 percent of the holdouts who don’t offer P2P services today do have plans to offer the payment service within the next 24 months.

• Among the financial institutions that don’t currently offer P2P services, the most common reasons included lack of customer/member demand and executives not feeling the need to offer such a service. Given the perception that there may be a low level of demand among their customers, it should not be surprising that over one quarter (27 percent) of institutions stated that they had more pressing product plans at the moment.

• Among the P2P service holdouts, one factor that has impacted bank and credit union interest in offering P2P services is the ability to earn a decent return on investment (ROI) as one-quarter of institutions gave this reason as to why they didn’t have a P2P service.

• Bank and credit union executives who currently offer P2P services in their franchises report that there are measurable improvements from offering it in the form of higher customer/member engagement and more product cross-sales.

• Overwhelmingly, survey respondents felt that mobile was the single most important channel to enable for consumers to be able to initiate a domestic P2P transaction.. A distant second choice (16 percent) was enablement through the online channel.

• Financial institutions clearly understand the limitations of being able to earn a direct revenue stream from P2P services. Only four percent of respondents felt the most compelling reason to offer a P2P payment service would be the opportunity to monetize those services in the future.

• A majority of survey respondents do not believe financial institutions can begin or continue to charge for domestic P2P transactions, although a portion did believe that real-time payments could present an opportunity to charge for the service. Fourteen percent of respondents felt that the opportunity to charge for P2P transactions has disappeared, while 46 percent believed that it was not likely the banks could charge for the service. Yet, 29 percent believed that it was somewhat likely for cases such as real-time payments. Only 11 percent felt that a bank could charge for the service since consumers would view it as just another ATM fee.

Figure 1: Does your organization offer a domestic WHILE NOT QUITE UBIQUITOUS, MANY person-to-person (P2P) payments service to its BANKS DO OFFER P2P PAYMENTS customers/members?

Two thirds (66 percent) of financial institutions surveyed currently offer or 61% are in the process of implementing a domestic P2P payment service. Despite the very public battle that legacy banks, card networks and their financial services vendors are having with non-bank fintechs such as Square and Venmo, fully one third of respondents don’t offer a P2P service, representing 34% a potential customer attrition risk. However, almost 60 percent of the holdouts who don’t offer P2P services today do have plans to offer such a service within the next 24 months. 5% Assuming the holdouts who plan to implement P2P services over the next

24 months do so, it will create a situation of “haves and have-nots,” whereby Currently Implementing/ Do not offer P2P roughly 85 percent of the banks surveyed will be offering the service and just offer P2P evaluating P2P

15 percent will not. This will likely place additional pressure on the holdouts Source: SourceMedia Research Survey 2019 to offer the service or risk higher customer attrition.

But unless financial institutions are on a common network or set of interoperable networks, then the value of the P2P offerings is not as attractive. With apps like Venmo it’s expected that the sender and recipient would have to enroll; with Zelle the enrollment process depends on whether the user’s bank is on the network. While banks can still send money to other banks that are on different networks (e.g., Fiserv’s Popmoney and FIS’ People Pay, since the funds are generally sent using the ACH network), any friction in the user process would be seen as a loss of speed.

Among the financial institutions that currently offer P2P services, about half have been doing so only in the last two years — a clear demonstration of how quickly the financial services industry is evolving. In fact, when Zelle launched in September 2017 it only had about 30 partners (banks, processors and card networks) supporting the program.2 As of February 2019, Zelle counts more than 200 partners that will be joining its payments (only 60 were live at the end of 2018) and is constantly adding more all the time.3 It should be noted that there numerous banks and credit unions that offer or plan to offer the Zelle P2P service though one of their processors who are a Zelle partner, such as Co-Op Financial, Jack Henry, FIS and Fiserv.

It should be noted that by the end of 2018, only 60 institutions were live with the Zelle service while dozens more were actively integrating it into

their mobile banking and online banking services. In 2018 Zelle processed $119 billion in transactions for the year representing a 60 percent year-on- year growth rate.4 In comparison, the non-bank service Venmo (owned by PayPal) processed $62 billion in payments in 2018, an increase of 79 percent over its 2017 volume.5

Among the financial institutions that don’t currently offer P2P services, the most common reasons were demand-based, such as a lack of customer/ member demand for a P2P service and executives not feeling the need to offer such a service. Given the perception that there may be a low level of demand among their customers, it should not be surprising that over one quarter (27 percent) of institutions stated that they had more pressing product plans at the moment.

Among the P2P service holdouts, one factor that has influenced bank and credit union interest in offering P2P services is the ability to earn a decent return on investment (ROI), as nearly one quarter (23 percent) of institutions stated this reason as to why they didn’t have a P2P service. Given the preponderance of free P2P payment services being offered to consumers today by banks and nonbanks, the ability for financial institutions to charge for a P2P service is severely constrained. So if a bank or credit union were to assess a fee, they risk launching a P2P service that few will use — and the perception that the bank is being greedy could lead to attrition.

Figure 2: How long has your bank/credit union offered your current primary domestic P2P payments service?

32%

26% 26%

15%

Under one year 1-2 Years 2-5 Years 5+ Years

Note: Total does not equal to 100 percent due to rounding Source: SourceMedia Research Survey 2019

The underlying issue for financial institutions is whether and when it is appropriate for them to charge a fee for money movement. Wire transfers and ATMs are two examples of where a customers see a fee as justified. Real-time and same day transfers that a traditional wire service offers are convenient for consumers when making large purchases but are also expensive and can require a branch visit. Therefore, wire transfers are at risk of being displaced for smaller transactions by other services such as P2P payments. While providing ATMs for customers to withdraw their money is considered a sunk cost, the service can also attract non-customers who pay a fee for the convenience. However, much like bill pay, consumers have become accustomed to using P2P services for little to no cost, so trying to charge for one could be an uphill battle.

Among all respondents, the most compelling reason to offer a P2P service is the ability to increase customer engagement, specifically getting more traction in their online and mobile banking channels, which was noted by 41 percent. The second most compelling reason identified by almost one quarter (23 percent) was the need to respond to competitors (both banks and nonbanks) offering the service.

A large proportion of bank and credit union executives who currently offer P2P in their franchises report being satisfied with the performance of their P2P services. There is even a solid minority (about one quarter) that

Figure 3: Why doesn’t your organization offer a domestic P2P payments service (Please select all that apply)?

Lack of demand 32%

Have more pressing plans 27%

Don't feel need to offer 23%

Unable to justify ROI 23%

Security concerns 18%

Source: SourceMedia Research Survey 2019

report being very satisfied with the performance of their P2P services. It’s important to recognize that existing bank and credit union P2P services generally reside within online banking and mobile banking apps, and that anytime a customer or member wants to make a P2P transfer he or she will need to use one of those channels. This creates a more positive impact on customer relations since it drives greater engagement and develops stronger opportunities for product cross-sales.

Very few executives interviewed were not satisfied with their existing P2P services. (Note: This survey did not delve into the reasons for their dissatisfaction.) All the major vendors of P2P payment services are continuing to make improvement to address any issues surrounding speed, security, user interface and transparency in an effort to improve satisfaction levels of both banking executives and customers. However, two issues remain that could impair bank executive satisfaction levels: the ability to add social elements to transfers (such as sharing payments due to the security risks it creates) and the challenge to charge customers for a P2P transfer when so many banks and nonbanks offer it for free.

Bank and credit union executives who currently offer P2P services in their franchises report that there are measurable improvements from offering it in the form of higher customer/member engagement and more product cross- sales.

A solid majority (almost three-quarters) of executives who offer P2P

Figure 4: What is or would be the most compelling reason to offer a domestic P2P service as an FI (please select one)?

41%

23%

13% 13%

6% 4%

Increasing customer Competitive Attract Prepare for Improve Other engagement response unbanked/underbanked faster payments cross-sell Source: SourceMedia Research Survey 2019

reported that their customer or member engagement had measurably increased as a result of offering the service. This is most likely the result of the decision to add P2P within the online banking channel or mobile banking app. Once consumers are using the banking app to start a transfer or review a recent receipt of P2P funds, there is a higher likelihood that they will engage in other banking activities and perhaps acquire new products. Notably, 29 percent of executives reported seeing a measurable increase in product cross-sales as a result of offering P2P services and a further 21 percent stated that they experienced a measurable drop in customer/member attrition.

A minority of executives report that offering a P2P service has had no measurable improvements to their franchise. This is counterbalanced with a similar-sized minority of executives who state that the P2P service has brought in new customers or improved financial inclusion.

It is possible that financial inclusion benefits are being underrepresented due to the fact that U.S. banks and credit unions don’t have the same formal financial inclusion targets and compliance reporting of unbanked consumers that exists in other countries. Further, such efforts run counter to the profitability-orientation of many financial institutions. While the Community Reinvestment Act (CRA) does require U.S. financial institutions to disclose their lending practices to mitigate redlining in low and moderate income neighborhoods, it does not fully address the unbanked/underbanked issue. Simply put, if executives are not held accountable to financial inclusion

Figure 5: How satisﬁed are you with the performance of your bank’s primary, domestic P2P payments service?

Very satisﬁed 24%

Somewhat satisﬁed 62%

Not very satisﬁed 12%

Not at all satisﬁed 3%

Note: Total does not equal to 100 percent due to rounding Source: SourceMedia Research Survey 2019

as they are with lending in CRA, then reporting the benefits of any service that drives inclusion is generally not measured or top of mind.

Overwhelmingly, survey respondents felt that mobile was the single most important channel to enable for consumers to be able to initiate a domestic P2P transaction. This should come as no surprise, since P2P services largely built their audiences in the mobile channel with companies such as Venmo, or are used in chat messaging apps such as Facebook’s Messenger and Apple’s iMessage. Further, the need to make P2P transactions generally lends itself to mobile use, such as splitting the tab at a restaurant or repaying someone at a sporting event.

Some merchants have taken advantage of this mobile channel-orientation by integrating a P2P within their mobile apps. For example, the Papa John’s Pizza app allows a consumer to initiate a “Pay with Venmo” request to their friends to share the cost of the pizza they ordered.

When Early Warning Services LLC launched the inter-bank P2P payment service called Zelle, it made sure at the time of launch to have a standalone mobile app in addition to having launch partners embed the service within their online and mobile banking channels. While the Zelle mobile app is intended to provide service to consumers whose bank has not yet integrated Zelle or is still considering Zelle, the fact that no online (PC/laptop) version

Figure 6: How has your domestic P2P payments service generated the following improvements in any measurable way (select all that apply)?

Increased engagement 71%

More product sales 29%

Lower attrition 21%

No improvements 18%

New customers 15%

Financial inclusion 3%

Source: SourceMedia Research Survey 2019

of Zelle exists is very telling as to the value of the mobile channel for P2P payments. Additionally, when the “Pay with Venmo” feature was launched to allow users to shop with the app it was enabled for both online and mobile environments. However, due to low online usage rates the app eliminated browser-based payments forcing consumers who wanted to shop with Venmo to use only the mobile channel.6

A distant second choice (16 percent) was through the online (PC/laptop) channel. While not as convenient as the mobile channel, online P2P transactions are often placed next to or in the bill pay section. The reasoning is that customers can use P2P to pay the gardener or piano teacher alongside other billers. Also, if a financial institution typically innovates first in the online environment and then ports the new features to its mobile app, it may make sense to enable the online channel first for P2P transactions. This type of situation may arise if a financial institution uses two different vendors for its digital channels – one for mobile and one for online.

The fact that no one picked the branch or ATM channels is merely a recognition of their lack of mobility, which is generally a key requirement for P2P payment services. Most bankers would likely shudder at the thought of someone going into a branch to make a P2P transactions as the emphasis at most branches is to sell products and services, provide financial advice and troubleshoot problems with clients. There’s also the limitation of the branch and ATM channels in that some digitally-minded customers would rarely visit them.

Figure 7: Which is the single most important channel to enable for consumers to be able to initiate a domestic P2P payment?

Mobile 84%

Online (PC/laptop) 16%

Branch 0%

ATM 0%

Source: SourceMedia Research Survey 2019

Depending on the financial services executive being surveyed, adding social elements to P2P services can be an attractive feature that drives adoption or a deterrent that prevents it from being used. Roughly half of the executives surveyed thought that adding social elements to P2P services was somewhat important to very important. The other half of executives interviewed felt social was not very important to not important at all.

On the surface, sharing payment transaction details would appear to run counter to growing consumer demands for increased privacy and the financial industry’s efforts to protect payment data. However, since many of the non-bank P2P services such as Facebook Messenger and Venmo offer the ability to share or comment on transactions, these apps could being influencing the choice. Also, when P2P transaction details are shared, no account numbers or payment card details are shown.

Social elements are in stark contrast to traditional banking services where consumer privacy is of the utmost importance. While Venmo has the ability to make transactions private, some people may forget to do so, thereby accidentally exposing certain transaction details that could become embarrassing to the user. This could potentially be a turnoff for consumers adopting a non-bank service such as Venmo and a boon to financial

Figure 8: How important is the ability to add social elements to domestic P2P transactions, such as the ability to share transaction details with others, allowing other people to comment on a consumer’s transaction, etc.?

36% 34%

18% 13%

Very important Somewhat important Not very important Not important at all

Note: Total does not equal to 100 percent due to rounding Source: SourceMedia Research Survey 2019

institutions adopting Popmoney or Zelle. Ultimately, the question remains if the risks outweigh the benefits of including social elements in a P2P transfer.

When it came to cashing-out funds received from a P2P transaction, survey respondents were almost evenly split — 45 percent felt the ability to transfer to another digital account was most important, while 44 percent believed the ability to spend was key. Being able to transfer to another digital account improves the usability of the service, however forcing someone to make a purchase could generate some type of interchange fee from the merchant at no cost to the consumer. The latter point is critical to a financial institution if it offers or plans to offer P2P services without a fee to the consumer.

Respondents were split on how the consumer should be able to spend among three different options, with debit card leading at 26 percent, followed by spending digitally from a mobile wallet at 13 percent and finally at 4 percent was the ability to spend in-store using a mobile wallet. By making a consumer use a debit card, it would mean that the consumer would need a debit card-enabled account which could generate interchange revenue when used for purchases. Enabling spend through a mobile wallet, either digitally or in-store, is a much more complex integration, yet speaks to some

Figure 9: Which is the single most important channel to enable consumers to be able to “cash out” of monies received from a domestic P2P payment service (please select one)?

Transfer to another digital account 44%

Spend/withdraw with a debit card 26%

Digital spend with mobile wallet 13%

In-store spend using mobile wallet 4%

ATM withdrawal 11%

Branch withdrawal 2%

Source: SourceMedia Research Survey 2019

executives having a longer-term view of where and how a consumer would Figure 10: Do you think FIs can continue or begin want to shop. to charge their customers for domestic P2P transactions, similar to using a competitor’s ATM? A majority of survey respondents do not believe financial institutions can begin or continue to charge for domestic P2P transactions, although a portion did predict that real-time payments could present an opportunity to charge for the service. Fourteen percent of respondents felt that the opportunity to charge for P2P transactions has disappeared, while 46 percent believed that it was not likely the banks could charge for the service. Yet, 29 percent believed that it was somewhat likely that users would pay a fee for cases such as real-time payments. Only 11 percent felt that a bank could charge for the service since consumers would view it as just another ATM fee.

Ultimately, the bstacle for banks and credit unions to charge P2P fees is no longer the nonbanks such as Venmo, Square and Facebook — instead, it’s the banks’ own P2P network, Zelle. While it is true that social media apps give away P2P transfers for free, Venmo does charge for real-time payments. The Not at all likely 23% real challenge to banks is Zelle, which is being offered for free and in many Not very likely 46% cases is real-time. Somewhat likely 23%

Very likely 8%

Source: SourceMedia Research Survey 2019

Figure 11: How familiar are you with the following U.S.-based bank and non-bank domestic P2P payment services currently in the market?

75% Very familiar Somewhat familiar

54%

41% 41% 38% 36% 38% 32% 34% 34% 29% 29% 25% 27% 27% 27% 21% 21% 18% 16%

PayPal Western ZelleVenmo Google MoneyGram Apple Facebook Square Popmoney Union Pay Cash Messenger Cash Source: SourceMedia Research Survey 2019

BRAND AWARENESS AND COMPETITIVE THREATS

PayPal stood out as having almost universal recognition among executives surveyed with three quarters having stated that they were very familiar with the brand. In general, the consumer-facing brand names that have been in market longer, e.g., PayPal, or have had heavy advertising, e.g., Zelle, tended to score well. Brands that were used to sell to financial institutions such as FIS’ People Pay and Dwolla barely received any recognition.

Venmo and Zelle scored almost equally in familiarity. Zelle’s consumer advertising coupled with its promotion by Early Warning Services to financial institutions as “the bank network” gave it a third-place position behind Western Union. Nearly tied with Zelle was Venmo, which owes its scores to its popularity, especially among millennials, having brought P2P services to the forefront of executives’ minds.

Western Union’s high overall familiarity score but low score on being “very familiar” could most likely be attributed to an awareness of the brand and its capabilities but potentially lack of regular use among respondents. Similarly,

Figure 12: How concerned are you about Chinese mobile wallets Alipay and WeChat entering the U.S. market to serve your customers with domestic banking and P2P payment services?

Amazon Alipay/WeChat Pay

43% 39% 38% 30%

18% 14% 9% 9%

Very concerned Somewhat concerned Not very concerned Not at all concerned

Source: SourceMedia Research Survey 2019

MoneyGram had a high combined very familiar and somewhat familiar Figure 13: What are your bank’s future plans for your score (over 60 percent), yet only about a quarter of the executives were very existing primary domestic P2P payments service? familiar with its services. 38% Executives were more concerned about Amazon potentially offering 35% domestic banking and P2P services (either directly or through a partner) to 29% their customers or members, than they were concerned about the Chinese mobile wallet players, Alipay and WeChat Pay.

Almost half (39 percent) of executives surveyed were very concerned and 15% 38 percent were somewhat concerned about Amazon offering competitive banking and P2P services. Meanwhile, only 18 percent were very concerned about Alipay and WeChat Pay. Leverage Leverage Expand Expand into into B2B into into B2C cross-border These high levels of concern are well-grounded in the fact that Amazon has bill pay consumer disbursements consumer proven able to move into a variety industries such as TV/movie content bill pay payments production and grocery delivery, and wreak havoc on the incumbents. Source: SourceMedia Research Survey 2019 Amazon is often cited as a contributing factor to the demise of several retailers such as Borders Books, Sears, and Circuit City. When Amazon bought the grocery store chain Whole Foods, competitive rival, Kroger, saw its stock drop more than 9 percent on the day of the announcement.7

Additionally, Amazon is much more prevalent in U.S. consumers’ daily lives than Alipay or WeChat Pay and already offers a variety of limited financial products on its own or through major partnerships. The products include private label credit cards (through Synchrony Bank), Visa credit cards (through Chase), Small Business cards (through American Express) and gift cards (through an Amazon subsidiary, ACI Gift Cards LLC). If Amazon were to offer more robust payment services, it would merely be an extension of its existing financial franchise. There is also the parallel of the eBay marketplace being in the payments business when it acquired PayPal (which it later divested due to shareholder pressure).

The lower levels of concern surrounding Alipay and WeChat Pay could stem from their existing clientele (largely Chinese consumers) and approaches to new markets (deals with banks). As the two services have entered other countries, including the U.S., it has largely been through bank or merchant acquirer partnership. When Alipay entered the U.S. market it was through a deal with First Data for the primary purpose of targeting Chinese tourists.8 In addition, the Alipay mobile wallet can accept cards from American Express, Visa and Mastercard.

FUTURE PLANS

In discussing future plans for an existing P2P service, a majority of executives (71 percent) responded with one or more answers to expand or leverage it for other payments types — ostensibly ones that could help monetize the service. Just under a third (29 percent) said that they did not have any future plans for their P2P service.

Clearly, most executives understand the need to use any existing infrastructure to its maximum potential by leveraging it into other payments forms. This is especially true of any infrastructure where the primary service (P2P in this case) is provided at low or no cost to the consumer.

Almost equally popular choices were to use the P2P services for B2B payments and consumer bill pay. B2B bill payments bring in a whole new set of customers — businesses — which can also lead to sales of cash management services, lockboxes and more.

Expanding into B2C disbursements was also a very popular choice, albeit one that would have more limited appeal to use cases that do a significant amount of disbursements such as insurance payouts, legal settlements, etc. Offering a B2C service riding on P2P rails would allow a financial institution to leverage a digital consumer directory and potentially real-time payment services to a company still mailing paper checks or even one that has already adopted ACH payments.

1 https://www.paymentssource.com/news/paypals-venmo-problem-it-moves-money-but-doesnt-make-any

2 https://techcrunch.com/2017/09/08/zelle-the-u-s-banks-venmo-rival-will-launch-its-mobile-app-on- monday/

3 https://www.zellepay.com/partners

4 https://www.paymentssource.com/news/zelles-volume-surges-but-theres-a-catch

5 https://www.cnbc.com/2019/01/31/venmo-had-a-break-out-quarter-but-wont-make-money-for-paypal- until-at-mid-2019.html

6 https://www.paymentssource.com/news/squeezed-by-zelle-and-poor-financials-venmo-prunes-browser- payments

7 https://www.thestreet.com/story/14182588/1/kroger-stock-slumping-as-amazon-buys-whole-foods- jpmorgan-downgrade.html

8 https://www.paymentssource.com/articles/chinas-alipay-grabs-slice-of-us-market-with-first-data-deal

CONCLUSIONS — NEXT STEPS FOR P2P

• Financial institutions need to think mobile-first when it comes to P2P payment services, as that is where the strongest consumer need and usage exists. While some institutions view P2P services along the same lines as online bill pay, the stark reality is that the future of banking resides with younger consumers who have grown up in a mobile-first environment and will be looking to engage their financial institution in that channel.

• Don’t get sidetracked with social media. Social elements in P2P transactions, while relevant in some contexts, are not necessarily relevant for banks and credit unions. There is little expectation that a bank or credit union would provide a social platform for customers, as doing so would run counter to expectations of trust and privacy. In exposing financial transfers to the social media world, financial institutions risk alienating some of their customers and could create security risks.

• Banks and credit unions need to recognize that in a mobile-first environment, consumers will want to use a P2P service without having to log into their banking app and go several clicks deep just to make a transaction. The advantages of the standalone Zelle app and Venmo are that consumers can open them in social situations and make transfers without having to reveal their financial balances in front of their friends. Of course, banks and credit unions could still require customers to log in for high-risk transactions.

• Financial institutions that have P2P services or are considering offering them in the future should consider having a that leverages the infrastructure built for other payment types in order to support or boost the ROI. Using the P2P infrastructure for B2B bill pay and B2C disbursements can attract new business clients. In addition to selling the add-on service, e.g., B2B bill pay, it also can create an opportunity to sell other business services, such as cash management, payroll, lockboxes and more.

• Increased customer and member engagement needs to be the primary motivator behind a financial institutions desire to launch a P2P service and not direct revenues from transfers. Additional benefits of increased product cross-sales and reduced attrition can also be factored into an ROI calculation. Just don’t charge for P2P on its own — that is an opportunity that has passed, given the plethora of free services available, and charging a fee will only serve to alienate a financial institution’s clients.

• Banks and credit unions should strongly consider launching a P2P services if they have not done so already — even if there customers are not demanding it. The growth of P2P transfers as measured by volumes sent by Venmo, Zelle and others indicate that there is keen consumer demand. Much like online bill pay was considered a necessary expense to increase customer engagement a decade ago, P2P services are going to be considered an expectation, not an add-on.