Emerging Person to Person payments business landscape

A WSJ report states that in US, each year the person to person payments are roughly about $900 billion that includes payments by cash, check, online, and mobile payments.  Online and mobile money transfers are standard features of most of the banks and payment providers like PayPal. In addition, money transfer operators like MoneyGram and Western Union are major players in both domestic and international person to person payments business. The incumbents – banks and money transfer operators have well established networks and systems in place to cater to a large global customer base. However, the person to person payments market is seeing increasingly new disruptive players. Convenience and lower fees are the two important levers used by these new players to take on the incumbents. The incumbents are under threat from three emerging groups of players in the person to person payments market.

The first group – retailers and telcos. Some months back, Walmart surprised everyone with the announcement of a new money transfer service that allows their customers to transfer money up to $900 at more than 4000 stores across US. This new service is different to the one that Walmart earlier had in partnership with MoneyGram. The fees are much lower than what the incumbents charge, making it a very attractive proposition for Walmart customers. This helps Walmart target a large segment of under banked customers for whom a Walmart store is easy to access than a bank. Also, money filled in the customers’ wallet in a store leads to more shopping by the customer.

The second group – Internet companies like Facebook, Amazon, and Google who are good in connecting people. There is buzz that Facebook is looking at acquisitions to enter into this space. Look at the convenience that it can offer, you send money to friends and family while you are interacting with them through Facebook/WhatsApp. In addition to convenience, their business model is usually based on zero or very low fees. Facebook already has money services license in most of the US states. There is speculation of Facebook getting the eMoney license in Ireland for its European business.

The third group – new set of players in the international money transfer business which is a major part of the person to person payments originating from US. TransferWise is very popular – it offers international money transfer at very low rates compared to what the banks and money transfer operators are offering. Their website gives comparison in real time. TransferWise says they offer forex in mid-market rate, a more transparent dealing and just a fee for the service. Their key USP is in their platform – it does not transfer money for every transaction i.e. if someone needs to transfer from US to UK and one another customer wants to transfer from UK to US – the transfer is handled domestically and only for the balance amount an international transfer is initiated. There is some speculation that TransferWise is one of the companies scouted by Facebook for acquisition to enter into this space. The Currency Cloud (TCC) is another B2B company in this space. It offers a cloud based software platform. Businesses can integrate/develop apps based on their cloud platform and do international money transfer at mid-market rates. They provide the entire payment lifecycle. Fidor Bank – the Germany based online only bank uses TCC’s product. TransferWise is another customer of TCC.

While Walmart’s move is attractive for a section of the customer segment involved in domestic person to person payments, the other new players are threatening the online, mobile, and international person to person payments. Banks are in a better position to respond to the emerging landscape than the money transfer operators. An option will be to reduce the fees and offset the revenue loss by capturing a larger volume of transactions. Another response could be to shift the business model to make customers use more of their other products and services for lower fees on services like money transfer. Banks could also make early moves to allow person to person payments through social media sites with a Facebook or Twitter app. Recently, Group BPCE, a French banking group launched a service that allows customers to tweet money to each other.

Though the new innovative services has caught lot of eye balls, these new players have still a long way to go and earn their customers trust for carrying out financial activities through them. This gives banks a good window of timeframe to better prepare and respond to the threats of the emerging players.

Author Details

Venkatakrishnan Balasubramanian

Venkatakrishnan is a Research Analyst with the Financial Services practice at Infosys. He works with large banks in Consumer Payments domain providing solution and architecture design. He specializes in Innovation Management and IT Management and has rich experience in IT industry that spans across product management, consulting, architecture, engineering, and technology development. He can be reached at Venkatakrishnan_B@infosys.com.

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