Apple’s decision to work together with credit card companies instead of trying to disrupt them turned out to be a smart, at least in the short term. However, while Apple Pay captures a lot of the attention and excitement, another big payment revolution is happening right now: peer-to-peer payments.
This term simply means real-time direct bank transfers between two parties, enabled by an easy-to-use mobile app. In the U.S., this segment is booming. The most successful player in this field so far is said to be Paypal-owned Venmo, which is “killing cash” (according to Bloomberg) especially for younger users. At the end of last year, Snapchat launched its own competitor Snapcash. A bit earlier, Square released Square Cash, and just last week Facebook announced the rollout of a money transfer feature for Messenger. Even Google allows for direct payments through Gmail – for Americans and since a couple of weeks ago even for users in the U.K.
Being able to send money to friends or colleagues with a few taps is useful, considering that most banking apps are rather clunky and cumbersome to use. But the real big deal is when peer-to-peer payments are being enabled for transactions between consumers and businesses. Dwolla has been focusing on this for some years, and now Square is entering the sector with Square Cash for businesses.
The interesting thing of peer-to-peer payments between consumers and businesses is that it cuts the credit card companies out of the equation. Even though consumers and companies in the European Union will soon benefit from an official and pretty low cap on card fees, globally transaction fees earn billions for the credit card companies and banks. When relying on peer-to-peer transfers, money is send directly from one bank account to another. Since this is a much more simple procedure which typically does not cost anything for account holders, it allows payment providers to offer a much lower fee structure, benefiting both consumers and businesses.
If the p2p payment boom continues and gets embraced on a large scale by retailers and businesses, credit and debit cards would lose a significant chunk of their market share in payments, with potentially wide-reaching consequences even for systems that rely on those cards, such as Apple Pay.
P2p payment apps are not a phenomenon limited to the U.S. According to a recent survey, about 30 percent of all smartphone owners in Sweden use payment apps. The majority of those are users of the local player Swish (backed by the leading banks). About 2.4 million Swedes have downloaded the app, which recently has started to woo businesses for its new b2c payment service.
Right now, the p2p payment market is fragmented on a country-by-country base, and it is not clear yet whether this trend catches on for b2c transactions. But there is little doubt that this is an exciting market worth watching.