P2P is a hot commodity in today's financial services industry and PayPal's massive P2P network and instant recognition are leading the charge. Just like Facebook and its 500 million friends, PayPal's 90 million users have massive clout in the payments world. More and more credit unions, which are looking for increasingly innovative ways to serve their members amidst stiff competition, will likely turn to PayPal's powerful and proven brand to deploy payment solutions into their online and mobile banking platforms.
The primary reason for PayPal's dominance of the P2P space: Integration with PayPal allows users to quickly send money to almost anyone with a mobile phone or email address. By leveraging PayPal's global network to send money, the sender needs only to logon to online banking, enter the destination email address or mobile phone number, and transfer the money. If the recipient is one of the 90 million PayPal users, the funds will be deposited instantly for verified accounts. If the recipient does not have a PayPal account, prompts lead them to create one.
For a P2P system to be readily accepted, the recipients of the payments must have some recognition of the payment mechanism and the brand. PayPal has this recognition in spades, and also has the existing accounts to boot. Because of this recognition factor, there is a trust factor built into the PayPal name. This trust factor makes sender and recipient adoption much easier since many already use PayPal. That's why many competing third party providers will have a steep hill to climb to make any headway in today's P2P sector.
For third party providers trying to make a dent in PayPal's dominance, I think the fact that I have never even heard of many of them is indicative of the overall lack of market traction they have. If you stand before a room full of credit union people and ask how many have PayPal accounts, most of the people will likely raise their hands. No one else comes remotely close to the name recognition and the sheer number of end-points PayPal already has globally. The eBay phenomenon helped propel this in a meteoric way.
PayPal has also been in the P2P game a long time (PayPal is the result of a March 2000 merger between Confinity and X.com. In October 2002, PayPal was acquired by eBay for $1.5 billion). Its eBay-borne marketing muscle and brand recognition are legendary in the payments world. Integration with the PayPal brand can also help with adoption within the credit union sphere since most, if not all, credit unions already understand the PayPal brand and its capability
It will be interesting to see what happens with P2P. At the moment, it is a very “hip” topic. The one thing that competes against P2P, however, is that I can have my online bill pay solution send anybody a printed check for free. So why wouldn't I just do that and save the fee? Everybody in the P2P business is up against this scenario. If I were the credit union, I would give away P2P to help kill off the cost of the check – which is higher in most cases. Within the payment recipient messages, the credit union can also send the payment recipient an invitation to join the credit union.
Also, since we are increasingly living in a global village, I might need to pay you in Ireland. Working in 27 countries today, PayPal handles all of the mechanics of this process, including OFAC and other international stuff that most PayPal competitors are not able to handle effectively. Perhaps the biggest reason people will use PayPal is that it can move money faster.
But there's always that remote chance that giants like PayPal can fall hard and quick. Who would have predicted the day when Apple would again make more money than Microsoft? Who would have guessed Facebook would be bigger than MySpace? And going back in time a bit: Who would've imagined Japanese automobile manufacturers outdoing U.S. auto manufacturers? I also see this slow turn happening to Mastercard and Visa. Never underestimate the leviathans, however. They can “buy up” or “buy into” whatever threatens their old model and make it theirs.
The payments world is evolving rapidly. I never hand out my credit card online anymore and all of my online purchases utilize either Amazon or PayPal. This fact alone is what scares so many financial institutions about these kinds of viral payment mechanisms. I can use PayPal like a mini-bank. It's that versatile. PayPal is used to store and send money to your kids in college, help pay the rent to your landlord, pay household bills, or simply send a friend some funds. Even businesses leverage the company's payment network.
With more than 90 million users–and growing, a proven brand, and highly rated customer service, PayPal is the “hands down” provider for P2P payments – for now. Credit unions venturing down the payments road to improve their member services ought to take an educated look at PayPal alongside its competitors. No doubt, P2P is here to stay. The evolution of P2P in the credit union arena will be interesting to watch.
Robert Broadwell is general manager of S1 Corp. subsidiary PM Systems Corp. in Chapin, S.C.
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