Peer-to-peer payments change the way people split tabs, pay bills

Now the Lancaster-based chief digital officer for BankMobile, Armstrong used to work for a company that developed mobile bank technology in areas where bank branches were scarce. That was around 2008, before smartphones tightened their grip on the American household — in other words, a technological eon ago.

The concept of mobile money transfers that Armstrong first saw 10 years ago and thousands of miles away is now the norm for many iPhone and Android users.

If you own a restaurant, you might already be hearing millennial customers asking their friends to “Venmo” the funds to cover their share of the tab. If you sell products or services through a mobile app, customers might soon ask if you can incorporate some kind of payment system that lets them more easily split the bill, something they can already do on their phones with national brands like Uber and Papa John’s.

These types of cashless transactions, called peer-to-peer payments, have grown in popularity over the past decade, with technology companies like PayPal and Square blazing the path.

Banks, too, are looking for ways to get a piece of the action, with some of the largest financial institutions in the country positioned to roll out potentially game-changing peer-to-peer tech in the coming months. Local banks, too, are trying to improve customers’ experiences with these types of payments through partnerships with national vendors.

It’s all about adapting to an increasingly cashless world — and trying to cash in on the change more effectively and more quickly than the competition.

‘Explosive growth’

Peer-to-peer payments typically go like this: Someone owes a friend a small amount of money for something like concert tickets or their share of the lunch bill. Instead of giving the friend cash or writing a check, the sender pulls out his smartphone and uses the friend’s cellphone number or email address to transfer the money via a mobile app.

That friend will then receive a notification that someone has sent him money and can set up an account to receive it, either in a digital wallet or directly to a bank account, depending on the app.

About a third of American consumers made a peer-to-peer transactions online or via a mobile app in 2016, according to a study by Javelin, a California-based research firm. Analysts expect that rate to grow to nearly 50 percent in the next five years.

“We’re seeing explosive growth in terms of consumers using peer-to-peer payments,” said Michael Moeser, Javelin’s director of payments. “We don’t write checks anymore. If I don’t write checks, how do I give you money?”

While banks have offered these kinds of services through their online banking sites for several years, peer-to-peer technology has grown especially popular among millennials in recent years with smartphone applications like Square Cash, Google Wallet and PayPal’s Venmo.

These apps have typically adapted more quickly to the mobile landscape than traditional bank-focused technologies.

Venmo specifically has unabashedly targeted millennials with social media-like features that show who paid money to whom and for what reason. A status update on this financial newsfeed might, for example, say something like “Sam paid Sally $20,” followed by a comment from Sam saying “Great lunch! (pizza emoji, smiley face emoji)”

That’s not to say banks have not tried to get in on the action. Fulton Financial Corp., for example, has offered peer-to-peer transactions through a vendor called Popmoney for the past several years, said Eileen Quinn, who manages the Lancaster-based bank company’s retail payment technology.

Popmoney lets Fulton customers send funds in much the same way as the tech companies’ apps. But instead of adding the money to the recipient’s digital wallet like Venmo, it sends it directly to the person’s bank account.

Popmoney charges the sender a 50 cent fee for every transaction and is only available to Fulton customers through the desktop online banking platform, Quinn said. However, the bank hopes to integrate the technology into its mobile app in the next year or so.

BankMobile is also looking for ways to improve users’ peer-to-peer experience, Armstrong said.

The company, a branchless offshoot of Wyomissing-based Customers Bancorp marketed toward millennial and underbanked Americans, has rolled out all kinds of technology from an innovation lab in Lancaster meant to reduce its reliance on less-than-reliable vendors. Among those innovations are a new app that integrates peer-to-peer payments with services that let users complete other tasks like paying bills and transferring money to their BankMobile account from accounts they hold at other banks.

Like Venmo and Square Cash, BankMobile’s peer-to-peer transfers are free, but like a bank, there’s no social feed showing users’ friends where and when they are spending their money. Armstrong sees it as combining the best elements from the tech companies with the security and credibility of a long-standing financial institution.

“We take it a lot more seriously as a bank,” he said.

Move over, Venmo?

Despite their best attempts, traditional banks have generally struggled to keep up with their tech competitors when it comes to peer-to-peer payments.

Last year, only 14 of the top 30 banks in the country offered these kinds of services through a mobile app, Moeser said. Twenty-two of those 30 offered some kind of peer-to-peer capability on their desktop mobile banking app.

Banks are often slower to adopt new technologies than companies in other industries, largely because of the level of regulation they face and the sensitivity of the consumer information they have to protect. With the exception of tech-first institutions like BankMobile, few have the ability to develop that kind of software in-house, leaving them waiting on vendors.

But customers wait for no one.

“If you as a bank have not offered that capability (for mobile peer-to-peer payments), you’re forcing that consumer who wants to transact to go elsewhere,” Moeser said.

A new technology rolling out of some of the country’s largest banks could give banks the boost they need to muscle their way into the tech companies’ territory.

Zelle is a payments network from Early Warning, a venture owned by some of the heavy hitters of the banking industry: BB&T, PNC, Wells Fargo, Bank of America, Capital One, JPMorgan Chase and U.S. Bank.

“In recent years, consumers have had access to convenient ways to digitally move money; however, until now, a broad mobile-based network that is fast, safe and secure was not fully realized,” said Melissa Lowry, vice president of marketing and branding at Early Warning.

Zelle’s payment capabilities are already integrated into some of its partnering banks’ apps, minus the Zelle branding. As the roll-out continues over the coming months, the Zelle name will become more prominent, giving about 86 million consumers access to its services, Lowry said. Virtually anyone with a checking account will have access later in the year when Zelle launches its planned standalone app.

Because of its connections to major financial institutions, Moeser believes Zelle has the potential to win over a wider range of customers than its competition, especially when it comes to people outside the millennial demographic.

“I think the target audience is everyone,” said Kris Dahl, a spokesman for Wells Fargo.

Wells Fargo was one of the first banks to start integrating Zelle functions into its app in December and has plans for a full launch later this quarter. Early Warning expects most customers of its network banks to have access to Zelle at some point this summer, with specific roll-out dates varying by bank.

Once that roll-out is complete, Dahl believes customers will choose Zelle over the competition because it offers the same kind of user-friendly interface as technologies like Venmo but within the convenience of a bank-based app customers already have on their phones. Zelle can also move money faster than some competitors, depositing it directly into the recipient’s accounts within minutes.

Zelle has nearly a dozen partnering financial institutions on-board so far in addition to its seven owner banks. These banks processed 170 million peer-to-peer payments through their existing technology in 2016, totaling $55 billion in aggregate transaction value, Lowry said.

But people shouldn’t sound the death knell for non-bank peer-to-peer payments just yet, Moeser cautioned.

Apps like Venmo and Square Cash already have their hooks in millions of consumers, many of whom will continue using them after Zelle’s big launch because of unique features like Venmo’s transaction newsfeed, Moeser said.

The tech companies are also finding ways to make peer-to-peer payments profitable through partnerships with businesses. Companies like Papa John’s, for example, let customers split bills with friends through a Venmo-powered technology called Payshare. Venmo announced earlier this year that it plans to expand its business partnerships through “Pay With Venmo” buttons that charge retailers a fee for every transaction.

So don’t discount the tech companies’ ability to parry the banking industry’s latest peer-to-peer attempt, Moeser said.

“I think there’s room enough for two.”