The future of p2p payments: when the smartphone replaces cash

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

Olga Kharif, the author of the publication Bloomberg, believes that Silicon Valley is now obsessed with the idea of ​​direct transfer of money using applications for smartphones. The consequence of this obsession was the birth of many different, as a rule, unprofitable ways of making such transfers, with the commission almost close to zero. The most popular of these applications are PayPal and its sister company Venmo . However, they are increasingly beginning to face competition, including from Google, Facebook, Square.

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

Apple also plans to fight. According to information received last month from a source familiar with Apple’s plans, the world's most expensive technology company is negotiating with banks to launch an additional feature for Apple Pay, allowing users to send money to friends. Analysts believe that in order to remain competitive, companies will have to make debit card transactions free of charge as part of this service.
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According to Crone Consulting, which specializes in market research, Apple can lose a lot of money on direct money transfer services, since such services are not cheap to operate. According to Crone, creating and confirming a new account linked to a debit card will cost Apple from 50 cents to 3 dollars per unit. Each operation will cost at least 25 cents. According to Will Stofeghi, an analyst at research firm IDC, such friendly translations do not bring big profits to companies. “I myself do not understand how this service can be monetized,” the expert says.

It is unlikely that Apple will be able to find a way to obtain direct profits from this innovation. Apparently, instead, the company will use it to distribute Apple Pay in stores. Since the advent of the mobile option tap-to-pay, a year has passed, but it has not justified the hopes placed on it. According to InfoScout's statistics, owners of new iPhones used Apple Pay to make 2.7% of the total number of possible purchases last Black Friday, whereas last year this figure was 4.9%.

Meanwhile, PayPal reports that Venmo users in the past quarter made transfers totaling $ 2.1 billion, using the app to jointly pay restaurant bills, pay rent for their neighbors and return money for movie tickets to friends. “We see this as a way to get the client involved in the game. Monetization is in second place for us, says Joe Lambert, vice president of PayPal. - Personal payment system users are our most active customers, they use all of our products. They spend more than the rest, both with PayPal and with our other services in general. ” In the near future, Venmo also plans to try out 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 for 1.5–2 years, says Richard Crone, 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 a purchase with it. “Apple hopes to consolidate and make inevitable the gradual spread of Apple Pay by encouraging personal payments,” says Crone. - If I send you $ 50, you, of course, want to get them. However, for this you will need to connect to the Apple Pay personal payment service. This is a viral way of distributing the application.

According to the same source, familiar with the company's plans and who wished to remain anonymous, Apple Pay may receive a powerful impetus to development even before the launch of a 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, the largest payment and clearing network in China, to launch Apple Pay on cash registers throughout China.

Analysts are optimistic about Apple’s plans, despite the fact that the US market, which amounts to $ 7.5 billion, now has no shortage of money transfer services using a smartphone. Some experts are so confident about 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 will see how these innovations affect the popularity of ATMs: people simply won't need to withdraw cash," said Matt Wilcox, senior vice president of marketing and innovation for banks, who provides services to Bloomberg.

Cardtronics, which operates an ATM network, does not take seriously the concern that mobile applications can challenge its business. “It is important to distinguish between theoretical and actual customer behavior,” representative of the company Nick Papathopoulos replied to the author of the article in an e-mail. “Cash is widespread, even in cases where customers have the opportunity to choose between them and other payment methods.”

If iPhone users begin to tie their bank accounts to Apple Pay, they will be able to completely abandon the use of credit cards not only for transferring money to friends, but also, quite possibly, for any purchases, thereby getting rid of the services of intermediaries. “It's a bit of a short circuit in the current pattern of interaction between consumers and payment service providers,” says Crone. “In 3-5 years, Apple Pay and similar services will be able to pick up 20 percent of all credit transactions.”

Predicting how long it will take to make such serious changes is almost impossible, but Aite Group analyst Taly Baker, who uses Chase's QuickPay at least once a week to transfer money to friends, believes that the future of cashlessness is inevitable: there will be nothing superfluous in my purse - only lipstick and a smartphone. ”

Jeremy Alleri, CEO and founder of the mobile Bitcoin wallet Circle , expressed his opinion on p2p payments in his Medium post , this company attracted millions of investments, and their Android application supports NFC payments like Apple Pay:

Jeremy argues that the p2p payments market has a reputation for being frozen in development. Many times, Western companies have tried to present their payment products on it, but none of them have managed to justify the hype created around it or to realize their potential. Nevertheless, now direct payments are becoming relevant again and are becoming 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 getting into the wide expanses of the entire ecosystem of financial services and payments.

Renewed interest in p2p payments became possible due to a number of factors: the global distribution of smartphones, the possibility of using them as tools for making payments (QR codes, Bluetooth LE and NFC technologies), the development of instant messaging applications and the emergence of open protocols for conducting settlement operations ( for example, blockchain). Together, they create the prerequisites for major changes in consumer finance, comparable to past breakthroughs in the development of media, communication technologies and retail on the Internet.

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

Analytical company Aite Group estimates the volume of the existing p2p-payments market at $ 1.2 trillion and reports in its research on the prevalence of products on it that use mostly non-electronic, solid-state or paper media, such as cash or checks. In other words, we already have $ 1.2 trillion in turnover, 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 has traditionally been more informal. It is because of the prevalence of the habit of paying for services directly, without intermediaries, and paying individually, cash remains so popular. However, an increasing number of consumers are beginning to use smartphones, and, therefore, p2p payment applications have all the prerequisites to radically change consumer habits in terms of storing and using money. The chances of doing so will increase if the industry can use open Internet protocols for transferring funds, as well as globalizing this phenomenon with the help of the Internet.

The p2p payments market is in many ways similar to the text messaging market 20 years ago. The latter was represented, as a rule, only by state bodies or commercial monopolies. Operators manually distributed and sent text messages to their destination, for the transmission of which mainly physical media, that is, letters, were used. In those days, few could have imagined that such everyday ideas as “e-mail” would revolutionize and affect text communications around the world.

Marketers have such a term - “unmanifest desire”. It is used to describe deeply hidden desires, the presence of which people do not even suspect. The appearance of applications that allow you to send payments and share funds as easily, smoothly and pleasantly, as we are now 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 a sharp increase in the areas of communication and information exchange. Equally rapid changes, an increase in activity, we will see in the field of p2p-payments. Gradually, the cost of transferring funds will approach zero, as has already happened with the exchange of messages 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 been around for more than one millennium, and yet it is only now that we have begun to penetrate the deep essence of this type of interaction.

However, let us return to our infopowder, that Apple can enter the p2p-payments market and who will benefit from this, how can one understand that someone has won. When it comes to our personal funds or savings accounts, people want applications that give them the widest possible coverage. They want to be sure that the funds they send will reach the recipient, that they themselves will be able to easily receive the transfers intended for them. This desire for wide coverage will increase the demand for open, worldwide applications. In this case, the choice of operating systems, devices, currency, or channels of information exchange used for this purpose will recede into the background.

The emergence of open Internet protocols for the movement of funds and the introduction of blockchains on a global scale would create conditions for the free exchange of money, as it already happens 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 cannot benefit from the benefits of a single global exchange network, Jeremy Allery summarizes.

Material for publication prepared by PayOnline, the international system for receiving electronic payments on the site and mobile applications. If you need to organize the reception of payments on the site, feel free to contact . Also subscribe to our corporate blog, there are still many interesting posts ahead.