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Mobile P2P Payments Race Leaves Smaller Financial Institutions In The Dust

The sharing capabilities of social media have led consumers to expect the same ease in moving money and a mobile-first mindset has them demanding a way to do it with their smartphone. Mobile P2P users, who digitally transfer money over a mobile device, are expected to grow from 69 million adults in 2015 to 126 million by 2020, reported Javelin Strategy & Research during an October 21 webinar. However, giant banks are sweeping the field, as 46 percent of their mobile device users have utilized mobile P2P while only 21 percent of credit union and 13 percent of community bank users have.

The mobile P2P surge has been led by adoption from both Generation Y and wealthy customers. 45 percent of both high net worth and core affluent customers have used mobile P2P in the last 12 months and 54 percent of Generation Y, compared with 33 percent of all customers. 75 percent of Moneyhawks, an FI's most profitable customers, have used mobile P2P. As credit unions and community banks trail their larger peers in mobile P2P, they run the risk of losing the most valuable pieces of their customer base. "If you don't offer them (mobile P2P), you'll see a migration of customers away from your institution because they want these mobile services," said Mary Monahan, Executive Vice President and Director of Research for Javelin. "Any size bank can drive innovation. We've seen small institutions that are very mobile-first but as a group I would say large banks are driving innovation and a lot of the credit unions and community banks don't think their customers want this."

While giant banks have outdistanced smaller FIs, they by no means own the mobile P2P market as many other players have entered the space, including Facebook, Google Wallet, Snapchat, Square Cash, Venmo and parent PayPal. Compounding the challenge, new entrants are often offering this service for free or at a very low cost. "How do I monetize that engagement and continue to make sure that my consumers are engaged with my business? That is a real challenge and that's what FIs have to think about as consumers are migrating to these free or low cost services," said Michael Moeser, Director of Retail Payments & Small Business Banking at Javelin.

Monahan noted that banks are in a vulnerable position as trust in the "Gang of Five" - Facebook, PayPal, Apple, Google and Amazon - has risen, while trust in the top five banks has nosedived. "That means that there's an opportunity for these tech vendors to start taking away market share," said Monahan. 


Javelin research shows that Hispanics, Asians and African Americans are adopting mobile P2P at a higher rate than Whites; Moeser noted that international mobile P2P transfers - typically cash sent abroad to family - were a strong driver of this trend.

Many of the newer mobile P2P apps are leveraging debit cards, as Moeser observes that they're "leveraging an established technology and not trying to get into the business of banking." Venmo does not charge for debit cards but charges a fee for users who prefer to use a credit card. Facebook's Messenger payments is a debit card-only service which also happens to be free. While Facebook's lack of interest in monetizing the service has surprised some, TechCrunch's Josh Constine notes that the company "makes so much money on ads, $3.59 billion in Q4,  (that) it doesn’t have to monetize payments directly. Facebook just needs to keep people locked into its platform and seeing News Feed ads by making Messenger as helpful as possible." Banks that charge transaction fees will most certainly lose ground against tech challengers who offer free mobile P2P payments.