Last year in July, we gave an overview of the Peer-to-Peer (P2P) payments industry. We took a look at the three main types of offerings in the space (Tech Solutions, Legacy Solutions, and Zelle) and how trends in the industry and consumer behavior were dictating where solutions were heading. This month we’ll provide some updates on those trends and look at what’s next in the ever evolving world of P2P.
Spurred on largely by the global pandemic and economic shutdowns, we have seen an explosion in the use of digital banking tools in the past year. Studies show that as many as 50% of consumers claim to use these platforms more often than this time last year and P2P is no different. In 2020, Venmo’s 52 millions users sent and received approximately $159B, a 59% increase year over year. Not to be outdone, Zelle processed 1.2 billion transactions totalling $307B, a 62% increase in their transaction value year over year. Just those two platforms alone accounted for more than what experts predicted would be sent in total transaction value for all of 2020.
Despite the economy opening back up, these trends do not appear to be slowing down any time soon as both businesses and consumers continue to look for safe, simplified digital solutions to the complex industry that is payments and banking. Over the course of the next year, each of these solutions is expected to further increase growth. Zelle is predicted to have over 48 million users in the United States by the end of the year and over $500 billion worth of transactions by the end of 2022. Venmo expects their US-based users to grow to nearly 78 million by the end of 2021, representing over 55% of all P2P users. Other platforms, like CashApp, are also expected to see rapid growth as well. These trends are all pointing to the P2P industry surpassing $1T in expected transaction value by the end of 2023.
In addition to the drastic growth that P2P has seen in the last 12-18 months, Tech Solutions are undergoing significant changes to their offerings in order to improve security, open new streams of revenue, and ultimately stay front and center with customers. Several platforms are doing this by entering the business-to-business (B2B) and business-to-consumer (B2C) space as well as adding capabilities for customers to pay merchants using their platforms. While we have yet to see any platforms add cryptocurrency to their P2P offerings, PayPal recently introduced the ability to use cryptocurrency to pay merchants. As crypto as a payment option becomes more mature, this is one area that presents a lot of opportunity for growth.
One such change that is currently creating some noise in the industry is the recent changes Venmo made to their fee structure. Starting just this week, Venmo introduced fees on certain types of transactions. Moving forward, any transactions tagged as “goods and services”, regardless if it is to a business account or between two personal accounts, will be accompanied by a fee of 1.9% plus 10 cents to the recipient. This, according to Venmo, is meant to protect both buyers and sellers by making the payment eligible for their Purchase Protection Program. While business accounts already have access to this protection, this change seems to be a direct response to the growing number of fraudulent transactions seen on P2P platforms across the industry and is in line with a similar approach already used by PayPal, Venmo’s parent company.
In addition to the fees for goods and services, Venmo is restructuring their fees for instant transfers to bank accounts. Starting August 2nd, instead of the current fee of 1%, up to $10, that is charged to instantly make funds available in a cardholder’s bank account, they will be charging 1.5%, up to $15 for the same process. Customers will still have the ability to select a free transfer, which may take up to three business days to complete.
These changes highlight the desire for third party solutions to take advantage of the increased volume on their platforms and reiterates what we highlighted last year, that these platforms are moving on to payments. They are looking to continue growing their P2P solutions and are now shifting their focus to increasing revenue through merchant services, credit cards, and rewards programs; all with the goal of driving more payments to their wallets.
How are we adjusting?
Our commitment, since Day 1, has always been to keep Financial Institutions at the center of peer-to-peer payments. The growth and changes we have seen in the industry over the past year do nothing but reinforce that we are on the right track. Through our integrations with digital banking and third party payments platforms, we continue to tackle what many view as the last big hurdle in the P2P space, interoperability, or the ability to exchange payments across various platforms. This would eliminate the guessing game of “Which app do you have?” and allows cardholders the freedom to both send and receive money however they choose.
We hear this reiterated time and time again by industry experts and see it in the ways that third party tech solutions are shifting focus. However, Financial Institutions are often the ones being left out of the equation. At Neural Payments, we continue to prioritize the institution as the trusted banking partner for safe and secure payments. We are simply providing a cost-effective way to stay ahead of the curve.
We look forward to the coming months as we continue building out integration points and onboarding new customers. Thank you for keeping connected to the Neural Payments team.