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The Battle For P2P Payments Supremacy

According to company reports, Zelle processed $35 billion in P2P (person-to-person) payments in Q4 2018 versus $19 billion for Venmo. For the full year, Zelle's total was $122 billion, almost double Venmo's $62 billion.

So Zelle is winning the P2P payments war, right?

Not so fast. A consumer study from Q2 and Cornerstone Advisors sheds light on the P2P payments market and reveals the nuances in understanding who's winning--and who will win--the P2P payments battle.

CPR Study

Here are five facts about mobile P2P payments that make calling a winner at this point a bit premature:

1) Banks are the real (current) leaders in the P2P payments race. Consumers moved more than $172 billion in funds to other people through their banks in 2018--and that doesn't count the $8 billion and change that was transacted through PopMoney. In addition, consumers transferred nearly $142 billion through PayPal. Take that, Zelle.

Survey of 2,436 US consumers, Q4 2018

However, with nearly 230 institutions signed up--but only 60 currently offering the service--Zelle is poised to cannibalize the bank volume and overtake PayPal for the top spot (based on dollar volume). Take that, PayPal.

2) Venmo adoption beats Zelle adoption. Only about a quarter of young Millennials (those in their 20s) use Venmo--roughly the same percentage that smartphone-owning Gen Xers do. Overall, just 12% of respondents are Zelle users.

Source: Q2/Cornerstone Advisors survey of 2,436 US consumers, Q4 2018

3) Most mobile P2P payers use more than one service. Of Millennials and Gen Xers who make mobile P2P payments (most do), half use three or more services. And among smartphone-toting Baby Boomers, two-thirds use more than one service (typically PayPal and their bank's).

4) Transaction size varies by service and age. Judging by the data, Young Millennials must dine at really expensive restaurants. Either that, or they're using Venmo to pay their roommates for their share of the rent, or  using the app to pay the landlord directly. Conversely, Boomers are making huge payments through Zelle, which I bet reflect a lot of account-to-account transfers within the family and maybe things like alimony payments.

Source: Q2/Cornerstone Advisors survey of 2,436 US consumers, Q4 2018

5) Google Wallet beats out Venmo and Zelle for potential use as a debit card. In a previous study, Cornerstone asked consumers how likely they would be to use the P2P providers if they offered a general use debit card. While PayPal was the clear winner there, a slightly higher percentage of respondents across each generation expressed interest in Google Wallet than in Venmo or Zelle. When the survey was conducted in late 2017, I'm not sure that a lot of consumers knew that Zelle was a P2P service from banks.

Source: Cornerstone Advisors survey of 2,015 US consumers, Q4 2017

So Who's Winning the P2P Payments War?

The answer--which no one will like--is "no one." Zelle can point to its impressive growth rates and transaction volume, but I wouldn't pronounce them the winner of the battle for four reasons:

  • This isn't a winner-take-all battle. People will choose the P2P app that is most convenient to them at the moment they want to do something. For example, if there are people I regularly text with (using our iPhones), and they don’t care that the money will go onto an Apple Pay cash card instead of into their bank account, then I might pay them using Apple Pay--bypassing Venmo and Zelle altogether.
  • It's not a fair fight. I'm a Zelle user. Not because I choose to use Zelle, but because my bank is a Zelle bank. When I first started transferred money to my kid's account they weren't Zelle transactions--but now they are. As Zelle brings on the 170 banks in the queue (and those that follow), more consumers will become Zelle users by default. C'mon, that's not a fair fight.
  • Zelle's economics are a tough pill for banks to swallow. The transaction costs for Zelle transactions are not insignificant (although there is conflicting information floating around out there about what those costs are). Regardless, with no direct revenue coming in from these transactions, what's the economic benefit? Please don't give me the "deeper engagement" or "retention benefit" story. I've heard that for the past 20 years with every online (and now mobile) feature that comes along. Fighting deposit displacement might be the best argument here.
  • The lines between P2P and B2C are blurring. When consumers use Venmo to pay their rent to a property management company or pay a lawn service for cutting the grass, are those P2P or B2C payments?

What should banks and credit unions do about Zelle? Many are wrestling with that question, but it's the wrong question to be asking. The more important question is: What is our checking account (and payments) strategy going to be?

With the threat of PayPal/Venmo, Apple Pay, and Square Cash moving into retail payments, those services may cannibalize banks' existing debit activity. Will offering Zelle help them stem that tide?

On the other hand, Zelle's potential move into B2B payments may help banks improve their small business and commercial banking offerings, compensating for the tough economics on the retail side.

Adopting Zelle might be the right thing for an institution--but it will only know it's the right answer if it understands how P2P payments fits into it checking account and payments strategy

To download a (free) copy of the Q2/Cornerstone report Fintech Adoption in the United States: The Opportunity for Banks and Credit Unions, click here.

Ron Shevlin
Director of Research
Cornerstone Advisors

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