State of the Industry
Yesterday, I had the privilege of sitting down with Randy Salsar for the 2020 NAFCU Partner Innovation Spotlight. The sessions included presentations of the ongoing innovation in the Financial Services industry, specifically that which benefits Credit Unions. It was great to see a full spectrum of new solutions for Credit Unions and their members. Randy and I dove into how the ongoing pandemic has highlighted the positive results of being decisive and acting quickly to the ever changing environment, not just in FinTech. Historically, what we have come across are great ideas or opportunities for products and services met with the tendency to lean into how things have traditionally been done. Where executing on those ideas and opportunities had become a large part of the struggle, we are now seeing quick action drive innovation.
The growing amount of change and opportunity is what I love about working in this industry. Even in the time since we started the journey to reshape the role a Financial Institution plays in the Peer-to-Peer (P2P) landscape, we have seen massive changes and increases in transaction volume. In 2020 alone, P2P payments are expected to exceed $396.48 billion. We have not, however, seen the corresponding innovation or growth in the traditional services.
When we look at the P2P space here in the United States there are three main offerings – tech solutions, legacy solutions, and Zelle.
Tech Solutions - like Venmo, PayPal, and Square Cash - are moving on to Payments, period. They are satisfied with the funding mechanisms for their accounts and have adequate merchant funds flowing through them. They are now shifting their focus to growing revenue through merchant services, such as Point of Sale solutions, credit cards, and rewards programs, all with the goal of driving more payments to their wallets rather than focusing on P2P transactions.
Although Legacy Solutions like PopMoney, Payzur, and PeoplePay, check the P2P box, have not significantly changed their offerings in the last several years. This has been further complicated by the consolidation of major processors with the FiServ and FDR as well as Worldpay and FIS mergers. The fact is that these legacy solutions tend to have limited networks for sending and receiving, which ends up leaving users frustrated with the experience and they often move towards Tech Solutions.
The Zelle Solution, while being driven by a number of the top banks, seems to still be recognized as the de facto solution for Financial Institutions. It is interesting that even though the processors are still selling legacy solutions, they have also created Zelle offerings for Financial Institutions to consider. In addition to high implementation and ongoing costs, we also see steady fraud with this solution, causing many FI’s to cap/control throughput – again, leading consumers back towards Tech Solutions.
Based on the above and if trends continue, the Tech Solutions will continue to eat away at these transactions from most small- to medium-sized FIs. In knowing this we must ask ourselves, is losing P2P as a service or not offering it as a core solution, a risk for Financial Institutions? Historically, the answer has been that it is fine to concede these transactions to Tech Solutions – it is viewed just like an ATM, dispersing consumers’ own cash. However, with the introduction of Visa and MasterCard payment services on top of those Tech Solutions, more is at risk with interchange now moving to the Tech provider rather than the Financial Institution. In fact we see the global brands doubling down on this effort by integrating directly into other Tech Solutions such as Visa’s recent partnership with Facebook to launch payments within WhatsApp. The brands are trying to stake claim to as many of these transactions as possible, again leaving Financial Institutions outside of the P2P opportunity.
With Synapse, Neural Payments is committed to answering this call and keeping Financial Institutions at the center of the Peer-to-Peer space, for afterall, the funds and accounts already sit within their control. We see these other products and solutions as possible connected partners to ultimately allow the consumer to choose how they receive their funds, all in a way that reinforces the Financial Institutions relationship with their cardholders. The demand for such a solution comes from both sides of the equation, Financial Institutions and Users. This can be seen through a tweet from entrepreneur and tech giant, Chamath Palihapitiya, expressing his desire for a simpler P2P offering, exactly what we have spent the past year building out.
As we continue to build out our new P2P ecosystem and pilot with the initial set of institutions, we want to continue to be the source of innovation in this space and build out meaningful connections in order to stay ahead of the curve. We are excited to share the results of the pilot in the coming months.
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