August 2, 2016
Instant payments or real-time payments are our inevitable future. Thanks to financial technology startups and technology giants like Google, consumer expectation for the speed and security of payments transformed significantly. In 2016, major financial institutions forced to keep up with expectations are launching proprietary solutions or getting in bed with startups that are able to help them with efficient real-time payments solutions.
However, we’re probably still not at a stage when instant payments are a routine. While consumers have extremely high expectations from payments providers, it is actually quite a complex task to introduce such a service.
In addition, as Randolph Pentel, Chairman at SoPayMe, a real-time payments provider, believes, Incremental innovation and lack of cross-industry collaboration have created a disorderly, muddled payment solutions marketplace. Current solution providers address only individual pieces of the problem pie. Indeed, even the most popular P2P payments application Venmo was able to reach less than 20% of the market share, leaving the rest to existing and emerging rivals.
Nonetheless, since the beginning of 2016, there is already a set of companies piloting or launching their real-time and instant payments systems. At the moment, let's focus on major banks that have recently enabled real-time payments. Having enough resources and manpower, large financial institutions are well-positioned to challenge financial technology startups in the nearest future.
According to some estimations, mobile P2P will grow to $174 billion, worth 30% of total P2P payment volume, by 2020. BI suggests that it’s up from $5.6 billion, or just 1% in 2014. The upward trend towards digital-based P2P is a positive indicator for banks to rush into offering the demanded service.
At the end of June, Wells Fargo announced that it will soon make real-time P2P transactions available to its more than 17 million mobile customers in the United States. Beginning August 1, Wells Fargo’s service allows its customers to send funds in real-time at no cost to any customer of a bank that participates in the real-time service, which operates on Early Warning’s clearXchange network. Wells Fargo customers can already receive real-time payments at no cost from customers at any bank participating in the network.
Customers are now able to access real-time P2P payments first through Wells Fargo’s mobile and tablet apps. Using the email address or phone number of the payment recipient, they will initiate a P2P payment, which will generate and send a payment notification to the recipient telling them their funds are available to spend, withdraw, transfer or save. Account information is not shared between the sender and receiver, and the bank claims all information to be transmitted securely.
Earlier, mid-June, Chase joined its US rivals Bank of America and U.S. Bancorp in offering real-time payments. As reported by BI, Chase has a massive user base that's already making bank-to-bank transfers, an activity that could be amplified once Chase joins forces with partner banks. Chase QuickPay processed $20 billion last year in P2P payments.
In March, Early Warning – the company focused on real-time payments, authentication and risk mitigation – has announced that Bank of America is processing real-time P2P transactions through Early Warning’s clearXchange network. Bank of America is one of the first banks to go live along with U.S. Bank.
Customers at both banks are able to send eligible real-time P2P payments to customers at either bank, with funds made available for use.
Real-time P2P payments are processed in two simple steps. First, after enrolling in their bank’s money transfer program, a customer initiates a P2P payment through online or mobile banking channels using a qualified recipient’s email address or mobile number. Second, a payment notification is sent to the recipient and funds are made available for withdrawal using any channel, including in the branch, at the ATM, with a debit card, at a point-of-sale, or more. Consumers’ account information is not shared and fund transfers are protected by the banks’ comprehensive authentication and fraud prevention tools.