The Rundown
- Credit union Internet banking specialist links with PayPal for P2P, citing existing user base.
- Analyst said PayPal brand recognition, service record makes that a compelling argument.
- iPay Technologies answers with its own standalone bill pay service.
- Startup Dwolla said it'll let price help it make its mark.
A South Carolina online banking specialist made a P2P shot across the bow recently when it said it was using PayPal as the person-to-person payment engine on its Internet banking platform.
P2P is increasingly seen as a must-have by credit unions and banks, a need being met by offerings from established players such as Fiserv's fast-growing ZashPay service (now contracted to more than 600 credit unions and banks) and iPay Technologies (now a 2,500-client division of Jack Henry & Associates) and by startups such as the new Dwolla service backed Iowa CUSOs including The Members Group.
But none have partnered with PayPal, the 800-pound gorilla of the P2P space seen by some as a potential threat to traditional credit unions and banks, until PM Systems of little Chapin, S.C., stepped up to that plate.
"We looked at alternative providers and startups, but when you stand in a room full of people and ask, how many of you already have PayPal accounts, many hands shoot up. Ask about some of the alternative providers and all you get are blank stares," said Robert Broadwell, general manager of PM Systems, a new division of S1 Corp. and longtime electronic banking and security technology provider to approximately 200 credit unions.
"At the consumer level, these other P2P players are virtually unknown whereas PayPal is a household name brand, and no one comes remotely close to the sheer number of end points PayPal already has globally," Broadwell said. He also said lack of consumer-level marketing of the new P2P brands and minimal global settlement capability will be other major drawbacks as the P2P battle unfolds.
"Being so far behind the curve when it comes to total users and user adoption rates also hinders them. For P2P systems to really work well, the payment service, not just the sender and recipient, must have both recognition and trust. PayPal has this in spades and the existing end-user accounts to boot," Broadwell said.
That argument holds water for payments analyst Emmett Higdon of Forrester Research, at least as far as the trust argument goes. He compares PayPal's market presence to Intel's.
"They're like the 'Intel Inside' for money movement, and they have established a level of trust over the years that many financial institutions haven't. You haven't heard about PayPal losing magnetic tapes with millions of customer records, or stories of people losing millions of dollars from their accounts because of some kind of attack," Higdon said.
He also said that he doesn't see PayPal as a competitive threat to banks and credit unions. "The brand has evolved so that it's more of a network than a standalone account type. They're not trying to replace checking accounts," he said. "It's just another way to access that money, much the way I do with my debit card."
And while security is important to consumers, perhaps even more important is ease of use. He said the setup process with many of the services is daunting, especially for the recipient.
"I'd sure as heck rather get a $10 bill than have to go through 10 or 12 or 15 set up screens in order to get my money from the buddy I just bought lunch for," he said. "Solving that user experience and overcoming the lack of compatibility of all these mechanisms running over the ACH system–that's the real issue facing P2P today."
PM Systems said it's making things easy by not only offering PayPal but doing it through their clients' existing online banking service, allowing the member to use the service from that familiar online environment.
Tom Campbell, PM Systems vice president of sales, said his company also intends to gain a competitive edge by making P2P part of the "transfer" function of its Internet banking service, rather than as a bill pay function such as with iPay and ZashPay.
"Our users don't need to have bill payment," he said. "We have internal transfers, cross-account transfers, remote transfers and person-to-person transfers built in. Our mantra is 'move money' not just pay bills," Campbell said.
Bill Ready, president of iPay Technologies in Elizabethton, Ky., said his operation already is answering that challenge with a recently introduced standalone version of its P2P offering that allows clients to adopt it without switching bill pay providers.
That said, "ideally, a credit union would have P2P tightly integrated into its bill pay as well as prominently displayed in online banking. Most of our credit unions already are offerings our P2P integrated into bill pay. With this product, the also will be able to display P2P right inside of online banking," Ready said.
Startup Dwolla said it intends to make its mark as a P2P service independent of existing bill pay systems. "It's a full payments platform," said Jeff Russell, executive vice president of The Members Group. "Members can pay individuals, businesses and merchants using the platform right now and we have credit unions now looking at how to integrate Dwolla into their bill payment platform to allow for electronic payments to businesses that are currently receiving checks through their bill pay system."
He also said that while Dwolla's system is more similar to PayPal than ZashPay (which uses the CashFree ACH payment system), iPay's and the others, including the ability for a merchant to accept Dwolla as a payment mechanism, there is one more difference. Dwolla charges 25 cents per transaction, compared with 30 cents plus 2.9% of the purchase in many cases with PayPal.
"The fees are lower and Dwolla includes the ability for the credit union to hold the funds from the member if it chooses to be the ACH originator, earning the interest income from those funds," Russell said, calling key competitors such as ZashPay "more of an ACH-transfer service in a person-to-person environment."
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