P2P Payment: “just” a feature or a must-have for banks?

Consumers increasingly ask for digital alternatives to replace cash. In terms of customer loyalty, financial institutions can hardly avoid offering P2P (peer-to-peer) payment. However, the market is still quite complex – simple solutions are needed.

If in the future, a generous relative has forgotten their wallet, grandchildren or nieces and nephews do not have to come away empty-handed – provided they have a smartphone. P2P payment allows gifts of money to be transferred quickly to the recipient’s smartphone. The mobile device becomes a wallet and, as a full-featured mobile payment tool, means that its owner does not have to rely on cash.

Complex market

Until now, online payment providers in particular, such as PayPal, the classic credit card companies (VISA, Mastercard) and specialised providers shaped the market, which is generally complex. “Every year, new P2P providers enter the market in Germany, and others disappear again,” says Fintech expert Jochen Siegert. In a market survey in August 2017, he emphasised: “P2P payment is just a feature, which ideally accompanies chats, platforms, operating systems or even banking apps and contributes fully integrated surplus values for chats, platforms, etc.”

Although “only” a feature, P2P payment can become a dealbreaker faster than the banking world would perhaps like to believe. Because it is easier than collecting cash for a joint surprise gift for a special birthday or splitting a restaurant bill to pay the amount discreetly from app to app at the touch of a smartphone screen.

P2P Payment: Integration in digital banking

Since tastes differ, it is difficult to imagine an entire circle of friends and acquaintances agreeing to a joint app. Moreover, it should be possible to transfer money without having to be registered in one and the same application. The “common denominator” could be that all participants use a (random) mobile banking application, which is also suitable for P2P payment. “It is simply an easier, more elegant and, above all, faster method of conventional online banking,” as stated in the blog of Fintechs Cashlink.

In fact, banks don’t have much to gain with P2P payment. Nonetheless, industry observers think there are good chances of it becoming the “next big thing” – for one simple reason: financial institutions have to integrate the function into their mobile banking in order to meet the basic requirements of their customers and keep them in this way. As is often the case nowadays in banking, it is all about customer experience. Especially since in German-speaking Europe, for many institutions it is “uncharted territory”, since giving a grandchild money when saying goodbye is not only an expression of financial sovereignty (“grandma/grandpa do not have to know”), but has until now marked the only area not touched by transactional digital banking.

 P2P payment must be convenient and simple

For an application and the bank behind it with its technology to establish itself in the market, several conditions must be met. It must be at least as convenient and function as easily as the exchange of cash. It all starts with the uncomplicated installation of the function without the time-consuming entry of personal details and account information. In this case, the application should not be bound to a specific operating system and ultimately, customers should be able to exchange money across app boundaries.

Not only P2P payment but also since November 2017, instant payment in the SEPA zone, occasionally reveals a rather “passive attitude” of the local bank sector. For example, Klaus Josef Müller, Head of Product Management for Cash Management in Corporate Banking, Commerzbank, was quoted in DerTreasurer as saying: “The reform of the Payment Services Directive has already created new possibilities for third-party providers to use account and payment transaction interfaces. In this respect, we assume that we will see in the coming years a continuous further development of instant payments with the collaboration of all market operators.”

If financial institutions also adopt this attitude in terms of peer-to-peer payments, customers will not have to wait for the consolidation of the P2P payment market. In fact, they will be able to rely on their bank – based on a digital banking hub – providing access to a convenient form of money exchange via smartphone.