Will Peer-To-Peer Payments Rescue the Mobile Wallet from Fad Status?


For all the hype about the rise of mobile payment technology -- use-your-smartphone-to-pay systems -- the reality is that it has been slow to catch on. As many critics have pointed out, there's no real "pain point" for consumers that this clever new technology alleviates. And with many popular smartphones lacking the hardware to make it work, not to mention an inadequate retail infrastructure, there's good reason mobile payment isn't taking over the world just yet.

But there is one place where it's starting to gain real traction: peer-to-peer exchanges.

Perhaps you've seen the commercials for Popmoney, a service that allows a customer to send money using the recipient's phone number or email address. Currently available through 1,700 financial institutions, as well as to any individual user who downloads its app, it has a lot of people jazzed by their ability to pay the babysitter or settle their portion of the dinner check with a tap on their smartphone.

Such "casual transactions" make up a significant part of the market: U.S. consumers transferred a whopping $21.6 billion via peer-to-peer payments in 2011, according to Javelin Strategy & Research, versus only $400 million for point-of-sale mobile transactions at retailers. That's a fact not lost on the mobile industry.

"We're razor-focused on social payments," said Tom Roberts, the senior vice president of marketing at CashEdge, a division of Fiserv that runs Popmoney. "We expect that a solution like ours will become embedded just like you're carrying cash that you're paying someone today."

Popmoney, and similar peer-to-peer exchange platforms like Venmo and Dwolla, are gaining steam because they do relieve a burden on consumers: Instead of having to find an ATM or dig out your checkbook, you can simply hit the person's phone number and transmit the money from your smartphone.

The basic mechanics work like this: Download the app and fill out a profile that syncs your bank account to your phone and can identify you by email or phone number. The person you are exchanging money with -- for example, a roommate you owe half the rent to -- must also have an account the links his iPhone number or Gmail address to his bank account. But after both parties are members of the P2P exchange, it's a simple matter to click the "Send Money" tab, identify your bank account, enter the recipient's phone number or email address, and send the money whizzing out to him instantly.

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This efficiency is especially appealing to tech-savvy twenty-somethings who may be allergic to pen and paper, checkbooks and envelopes. These types of transactions are especially convenient for roommates or people sharing the costs of a gift. In fact, formal house transactions like rent make up 67% of Popmoney transactions, followed by casual expenses like dinner and entertainment at 25%, and group costs for such events as a wedding gift at 10%.

The transactions are free for the recipient and cost 95 cents to the sender, as opposed to the 2.9% that PayPal charges. Among its competitors, PopMoney has been around the longest and has the biggest share of the market, but Dwolla and Venmo are also catching on. In a sign of the times, Braintree, the fastest growing platform for online and mobile commerce, recently acquired Venmo, largely on the strength of its peer-to-peer capabilities.

Of course, the mobile wallet can't survive on payments to dogwalkers and SAT tutors alone, since the amount of money exchanged among individuals pales in comparison to commercial transactions.

But the more comfortable consumers get with the idea of exchanging money through their phones, the greater the likelihood that the retail industry will feel compelled to start adopting the technology at the point of sale. At least that's the theory.

"This is still some years into the future, but will gain real traction within the next three years," said Ramsés Gallego, an international vice president of ISACA and security strategist at Dell. "[Mobile] devices are bringing convergence from many disciplines. Payment is no different, and a time will come when few people will use cash and the credit card will be the device itself."

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