In this report, we look at the market for online and mobile person-to-person payments, a market expected to grow to 15 to 20 million U.S. households by 2020 (or more if the predominant pricing for low-value transfers is free).
When we first wrote about this area ten years ago (OBR 54, Nov. 1999), three major U.S. banks had P2P systems in the works: Wells Fargo, Bank of America and Bank One. By 2002, all were shuttered; knocked out cold by the biggest financial-services success story of the dot-com era, PayPal.
PayPal now dominates eBay commerce and has become a force at other online merchants as well. But still, people for the most part, pay each other the old-fashioned ways: cash, checks, and IOUs. Because electronic transactions are often more expensive, they won’t catch on until their convenience solidly trumps paper.
Mobile banking may be that path to ultra-convenience. Gartner seems to think so. The research company put money transfer as the number-one most important application for smartphones in 2012.
The question isn’t whether electronic P2P payments will eventually replace paper; they will. It’s who will control the service, financial institutions or third parties? PayPal already has a substantial head start with a 72% penetration rate among U.S. online shoppers. Nice, but financial institutions have relationships with 100% of checking-account customers.
The report also looks at the size of the domestic P2P market through 2025 (measured in U.S. household usage).