We have seen relatively immediate and significant effects in payments within the P2P domain, particularly during the economic shutdown, but it will likely persist beyond it. We expect that the convenience and safety of electronic P2P transfers will guide many users toward a permanent behavior change. Further, cost barriers are falling away: the cost of these transactions is generally free for domestic transfers, and declining for cross-border remittances as more competitors enter and penetrate the market.

Short-term Impact

Paper based forms of payment are still predominant in this domain and represent a clear risk in the current environment. Cash payments must be greatly curtailed during the period of social distancing and concern about virus transmission as is the case in the POS domain. The use of checks remains viable thanks to ongoing mail delivery and the widespread availability of mobile deposit capture, but still presents some health challenges given the paper handling requirement. 

So, it should not be surprising that electronic P2P solutions, which were already scaling quite nicely, are getting a major boost here in the Great Lockdown. Beyond their obvious benefits in convenience and hygiene, the economic disruptions suffered by so many people are increasing the need for family members and friends to assist one another financially. 

The “established” leader in this still emerging space is the Venmo service, owned by PayPal. While PayPal’s Q1 2020 overall results show a bit of deceleration due to the public health crisis, Venmo volume continued to grow at nearly the 50 percent YoY pace recorded last year. In each month of the first quarter, Venmo processed more than $10B in transfers during each month of the first quarter, a run rate well above the $100B processed last year.

Zelle, the bank-based account-to-account transfer system introduced by Early Warning Services just a couple of years ago, has grown even larger. It processed $187 billion in P2P volume in 2019, growing 57 percent. It is also reporting above-trend line growth in enrollment with growing usage across consumer segments, including those over the age of 55.

We fully expect that these services, and other P2P solutions from the likes of Apple, Google, Square and others, have experienced accelerating growth so far in 2020, particularly under the influence of the pandemic starting in late March and early April. For example, Bank of America recently reported that its Zelle volume grew 76 percent in Q1 2020 compared to the same period in 2019 among its more than 10 million registered users.

Longer Term Impact

While we don’t subscribe to vague predictions that “everything will be different” after the COVID-19 threat subsides, we take the view that P2P transfers will exhibit a sustained pattern of electronification. 

That isn’t a bold prediction: the trend was already well underway before the novel coronavirus arrived. Demographic factors were already pressuring cash and especially check usage.

With a large number of reticent users motivated by the crisis to try the costless electronic P2P services, we do not expect consumer behavior to revert to previous patterns once the threat of the virus subsides, unless perhaps a major P2P system were to experience a widespread security breach (PLEASE use a strong password and remain alert to account takeover risks!).

In fact, we envision an expanded scope of activity over the coming years.

While there is a tendency to associate P2P transfers with small, casual transactions (splitting the lunch tab, settling that sports bet), these systems are already being used for more fundamental purposes. Zelle transactions currently average about $250 and are often used for hard to automate applications like rent payment and utility sharing among roommates. Anecdotally, they are also used to complete consumer payments to smaller, less formal businesses (think landscapers, home healthcare workers, tutors and the like).

Recognizing this trend, Venmo raised its transaction limit to support these and other use cases.

Square now segregates the sources of revenue from its Cash app into “Sending” (activities related to personal transfers) and and a fast-growing category of “Spending” (card transactions and ATM withdrawals tied to the balance in the Cash app). Even this treatment, we think, underestimates the commercial use of the Cash app as simple transfers for rent and utilities do not generate revenue unless they are funded by a credit card or subsequently transferred to a bank account using the instant deposit feature.

We also see application for P2P transfers in the disbursement space, that is, businesses, government agencies, and other organizations that have a need to remit funds to consumers or very small businesses. The “push to card” systems offered by the card networks (e.g., Visa Direct, Mastercard Send) are already being widely utilized by insurance companies to pay claims to individual policyholders and by ride-sharing services to pay their drivers on an expedited basis (for which drivers pay a premium). 

Government disbursement also impacts P2P usage. Square’s Cash App broke multiple records in Q1, including April’s highest ever net-new active customer growth with volume increasing some three times over March. Tied to direct deposit volume, this growth was primarily driven by CARES Act stimulus payments.

As we often say at Glenbrook, payments players usually don’t stay in their boxes, and we expect to see more innovative use of these transfer systems beyond pure P2P remittances in the coming months and years.

Implications

Expect accelerating growth for all electronic P2P systems in the near term and beyond as the coronavirus crisis suddenly makes them a far superior alternative to cash and checks for many more consumers

Expect this behavior change to be permanent. It was already well underway as a secular trend and is now being boosted by an exogenous event.

Expect P2P transfers to continue morphing into new use cases and applications involving payment of less formal bills. Enterprise disbursements are a large opportunity for these systems and, unlike pure P2P transfers, it can produce a new revenue stream for financial institutions and processors.

Recommendations

Financial Institutions

P2P functionality is no longer a slick feature or a “nice to have”. COVID-19 makes it an immediate necessity. Given what is sustained change in consumer behavior and expanding use cases your investment is worthwhile.

Small Businesses

Consider how these systems can be leveraged to reduce inbound check volume, even if there is a cost. Your employees and customers will thank you.

Private and Public Enterprises

That check that’s in the mail was hurting your reputation anyway and now it carries health risks with it. Explore the ways P2P systems can be used to drive both better efficiency and greater customer satisfaction.