The future of p2p payments: when the smartphone replaces cash

Recently, in our corporate blog, we talked about the mobile NFC payment industry, focusing on Apple Pay. The news came out on Bloomberg that Apple plans to increase the distribution of its payment system by launching a new p2p payment service that will allow money to be transferred via iPhone from an account to private individuals. For us at PayOnline , which organizes payments on websites and mobile applications, this news seems significant, and we have prepared a review of the opinions of Western experts on this topic:

Olga Kharif, author of Bloomberg, believesthat Silicon Valley is now obsessed with the idea of ​​direct money transfers using smartphone apps. The consequence of this obsession was the emergence of many different, usually unprofitable ways of making such transfers, with a commission almost close to zero. The most popular of them now are the applications of PayPal and its subsidiary Venmo . However, they are also increasingly facing competition, including from Google, Facebook, Square.

Issue 1: The market for mobile NFC payments: key players, the current situation and future prospects;
Issue 2: the future of p2p payments: when the smartphone will replace cash;
Issue 3: Apple's mobile payment system: practical use and development prospects
Issue 4: Apple Pay will become available on mobile websites, and will also be fully launched in the Russian Federation by the end of this year.
Issue 5: How does Apple Pay affect the payment industry?
Issue 6: Starbucks Mobile Payment Success Secrets
Issue 7: Apple Pay Will Be Available in Russia, Japan, and New Zealand This Fall

Apple also plans to enter the fray. According to information received by the publication last month from a source familiar with Apple's plans, the world's most expensive technology company is in talks with banks to launch an additional feature for Apple Pay, which allows users to send money to friends. Analysts believe that to maintain competitiveness, the company will have to make debit card transactions free of charge as part of this service.

According to Crone Consulting, a company specializing in market research, Apple may lose a lot of money on direct money transfer services, since such services are not cheap to operate. According to Crone, the creation and confirmation of a new account tied to a debit card will cost Apple from 50 cents to $ 3 per unit. Each operation will cost at least 25 cents. According to Will Stofegi, an analyst with research firm IDC, such friendly translations do not bring companies much profit. “I don’t understand how such a service can be monetized,” the expert says.

Apple is unlikely to find a way to get direct profit from this innovation. Apparently, instead, the company will use it to distribute Apple Pay in stores. A year has passed since the advent of the tap-to-pay mobile option, but it still has not met the expectations placed on it. According to InfoScout statistics, owners of new iPhone models used Apple Pay to make 2.7% of the total number of possible purchases on the last Black Friday, whereas last year this figure was 4.9%.

PayPal, meanwhile, reports that Venmo users made transfers totaling $ 2.1 billion last quarter using the app to co-pay restaurant bills, pay rent for their housemates, and give friends money back for movie tickets. “We see this as a way to engage the client in the game. Monetization is in second place for us, ”says Joe Lambert, vice president of PayPal. - Users of the personal payment system are our most active customers, they use all our products. They spend more than others with PayPal or with our other services in general. ” In the near future, Venmo also plans to test the introduction of payment for goods and services in stores.

Adding the ability to send money to each other on new iPhone models could double the number of Apple Pay users in 1.5–2 years, says Richard Crown, Executive Director of Crone Consulting. This change could be very profitable for Apple, which charges a fee every time users take out a smartphone and pay for the purchase with it. “Apple hopes to consolidate and make inevitable the gradual spread of Apple Pay by stimulating personal payments,” says Crown. - If I send you $ 50, you, of course, will want to receive them. However, for this you will have to connect to the Apple Pay personal payment service. This is a viral way to distribute the application. "

According to the same source, familiar with the plans of the company and wishing to remain anonymous, Apple Pay can receive a powerful impetus in development even before the launch of the personal money transfer, which is expected early next year. According to another source close to the company, Apple has already reached a preliminary agreement with UnionPay, China's largest payment and clearing network, to launch Apple Pay on cash registers throughout China.

Analysts are optimistic about Apple’s plans, even though there is no shortage of money transfer services using a smartphone in the US market, which is worth $ 7.5 billion. Some of the experts are so confident in Apple's success that they even predict negative consequences for credit card providers and ATM manufacturers. Money transfer applications can reduce the need for cash dispensers. “We’ll see how these innovations affect the popularity of ATMs: people simply don’t have to withdraw cash,” says Matt Wilcox, senior vice president of marketing and innovation for banking services at Bloomberg.

Cardtronics, an ATM network company, does not take seriously concerns that mobile applications may challenge its business. “It is important to distinguish between theoretical and actual customer behavior,” Nick Papatopoulos, a company spokesman, replied to the author of the article in an email. “Cash is widespread, even in cases where customers have the opportunity to choose between them and other payment methods.”

If iPhone users begin to attach their bank accounts to Apple Pay, they will be able to completely refuse to use credit cards not only to transfer money to friends, but also, quite possibly, for any purchases, thereby getting rid of intermediary services. “It's a bit of a short circuit in the current scheme of interaction between consumers and payment service providers,” says Crown. “After 3-5 years, Apple Pay and similar services will be able to take 20 percent of all credit operations.”

It’s almost impossible to predict how long it will take for such major changes, but Aite Group analyst Talie Baker, who uses Chase’s QuickPay at least once a week to transfer money to friends, believes that a cash-free future is inevitable: “I can’t wait for the day when there’s nothing extra in my purse - just lipstick and a smartphone. ” Jeremy Allery, CEO and founder of the Circle mobile Bitcoin wallet ,

expressed his opinion on p2p payments in his post on Medium , this company attracted millions of investments, and their Android application supports NFC payments like Apple Pay:

Jeremy claims that the p2p payment market has a reputation for being frozen in development. Many times Western companies have tried to present their payment products on it, but not one of them has managed to justify the excitement created around it or to realize its potential. Nevertheless, now direct payments are again becoming relevant and are turning into one of the most valuable components of the consumer segment of the Internet. Like other super-popular applications, whose work is based on providing consumers with attractive and free services (search services, communication tools, media), p2p payment services have the potential to become a springboard for reaching the wide open spaces of the entire ecosystem of financial services and payments.

The renewed interest in p2p payments became possible due to a number of factors: the global spread of smartphones, the possibility of using them as tools for making payments (QR codes, Bluetooth LE and NFC technologies), the development of messenger applications and the emergence of open protocols for conducting payment transactions ( e.g. blockchain). Together, they create the prerequisites for major changes in the field of consumer finance, comparable to past breakthroughs in the development of media, communication technologies and online retail.

In addition to technical factors, there is also a demographic factor — the maturing of the “Next generation,” whose purchasing power in the United States already exceeds $ 1.4 trillion annually, and is growing in the rest of the world. Millennials highly value mobility, including in matters of money and how to handle it. Moreover, over time, they grow and develop professionally, accumulating a personal fortune, and getting at their disposal material goods inherited from their predecessors. All this will lead to the fact that they will inevitably play a major role in the distribution of applications for making retail payments and personal wealth management.

An analytical company Aite Group estimates the volume of the existing market for p2p payments at $ 1.2 trillion and reports in its studies on the predominance of products on it, using mainly non-electronic, solid-state or paper media, such as cash or checks. In other words, we already have $ 1.2 trillion in circulation, work with which is possible only with the help of obsolete, non-digital mechanisms.

Analyzing the majority of emerging markets around the world, it can be noted that p2p payments form the basis of their economic activity, which in general is traditionally more informal. It is because of the prevalence of the habit of paying for services directly, without intermediaries and paying individually, that cash remains so popular. However, an increasing number of consumers are starting to use smartphones, which means that p2p payment applications have all the prerequisites in order to fundamentally change the habits of consumers in terms of storage and use of money. The chances of doing so will increase if the industry can use open Internet protocols for transferring funds, as well as globalize this phenomenon via the Internet.

The p2p payment market is very similar to the text messaging market 20 years ago. The latter was represented, as a rule, only by state bodies or commercial monopolies. The operators manually distributed and sent text messages to the destination, for the transmission of which they mainly used only physical media, that is, letters. In those days, few could have imagined that such commonplace ideas as email would revolutionize and influence text communications around the world.

Marketers have such a term - "unmanifest desire." It is used to describe deeply hidden desires that people are not even aware of. The emergence of applications that allow you to send payments and share funds is also easy, unhindered and pleasant, as we are sending letters, messages or content on the Internet, will have the same effect as if we were fully allowed to enjoy our “unmanifest desire”.

Over the past twenty years, we have seen sharp growth in the areas of communication and information exchange. Equally quick changes, growth of activity we will see in the sphere of p2p payments. Gradually, the cost of transferring funds will approach zero, as has already happened with messaging and content on the Internet. In addition, mobile applications will offer completely new mechanisms for using money. The idea of ​​direct exchange between people has existed for more than one millennium, and yet, only now have we begun to penetrate the deep essence of this type of interaction.

However, let’s get back to our informational guide that Apple can enter the p2p payment market and who will benefit from it, how can we understand that someone won. When it comes to our personal funds or savings accounts, people want to have applications that give them the widest possible reach. They want to be sure that the funds sent by them will reach the recipient, that they themselves will be able to easily receive translations intended for them. This quest for widespread reach will increase the demand for open, worldwide applications. At the same time, the choice of operating systems, devices, currencies or information exchange channels used for this will fade into the background.

The emergence of open Internet protocols for the transfer of funds and the introduction of blockchains on a global scale would create the conditions for the free exchange of money, as is already happening with the exchange of information on the Internet. Currently, most pioneers and major market players are building closed systems, where users are tied to their platform and customers, and can’t get the benefits that a single global exchange network could bring, ”sums up Jeremy Allery.

The material for publication was prepared by PayOnline, an international system for accepting electronic payments on the site and mobile applications. If you need to organize the acceptance of payments on the site, feel free to contact . Also subscribe to our corporate blog, there are many more interesting posts ahead.