The Next Technology for Payment Solutions

P2P technology offers a new channel for person-to-person payments through e-mail.


Can you imagine saying good-bye to checks with their expense and snail's pace? This is what Peer-to-Peer (P2P) payment technology promises financial institutions and their customers. It's a service addressing the needs of both parties and potentially a great opportunity for credit unions and their members.

P2P is a transaction, through which the initiator can send funds deducted from her account or credit card to anyone with an account at a financial institution. The system sends an email to the recipient who can then download the funds into his account. What this means is that virtually any traditional check payment can be replaced by P2P. This way anyone could instantly pay the neighbor's son for mowing the lawn, or send money across the country to a daughter in college.

For credit unions this means a chance to expand its services while reducing costs. Credit Union Magazine reports that "P2P and A2A technologies could drive down credit union costs because these payments wouldn't go through the regular bill payment process but through less-expensive channels such as the ATM network." Most P2P transactions go across ACH.

TowerGroup Senior Analyst Elizabeth Robertson believes "P2P will grow as other online payment services grow (such as billpay). As more users go online, they become more comfortable with other online services."

Mike Pozzi, chief operations officer of Meadows Credit Union (Illinois, $136 million) is optimistic about the technology. "Each month we see the number of enrolled members go up, as well as the number of transactions and dollars per transaction. Once everyone figures out how great it is, it will blow the doors open," he says.

The most successful brand in the P2P market is PayPal, which boasts over 57 million users in 45 countries. However, there are vendors focused on servicing financial institutions. Online banking provider, Digital Insight promotes P2P as a strategic product for credit unions. "P2P payments are a way for credit unions to increase share-of-wallet and attract new deposits," said Michal Geller, director of product development. "Members who utilize online channels have higher net assets overall and tend to be more valuable relationships."

Some credit unions are skeptical, such as Patelco Credit Union (California, $3.5 billion) which has offered P2P for over a year. Project coordinator David Tawn has seen some receivers ask members to cancel the service. "The receivers must provide their social security number. This turns them off because we are not their financial institution," he says.

There is also a concern about fraud. However, Gartner Inc. claims PayPal's fraud rate is significantly lower than for online credit cards. "Anyone using billpay is already exposed to the same risk," says Neil Platt, vice-president of business development for CashEdge, an online financial solutions provider. While third-party vendors assume the risk for P2P transactions, the insurance is limited, prompting credit unions such as Patelco to put restraints on the amount of money transferred per month.

The TowerGroup's Robertson believes the success of P2P is dependent on its connection to other online services. "If the service is well-positioned and well-integrated, members may begin to try it out and use it regularly," she says. Pozzi agrees. "It reminds me of the early days of billpay. It makes absolute sense that people are going to love this."