Banks are rolling out new payment plans to compete with PayPal
Most Americans seem quite happy to pass money along to family and friends with cash and checks.
But banks can’t charge any fees for that.
They want us to switch to electronic person-to-person, or P2P, payment plans that are surprisingly safe and easy for us to use -- and profitable for them to provide.
Indeed, banks see new fees for P2P payments as a great way to replace all of the gotcha fees that Congress and the Federal Reserve have banned over the past couple of years.
As much as we groan at the thought of new bank fees, we suspect many of you will like this new service and be willing to pay for it.
Here’s what you need to know about P2P payment plans before the banks crank up their marketing campaigns and start making like PayPal.
Just a decade ago. banks brushed off the cheeky little e-payment upstart that allowed consumers to send money to each other online.
But when online auction giant eBay acquired PayPal in 2002, banks started to bristle.
After all, PayPal was generating revenue using the same automated clearing house, or ACH, that the banks use to process payments.
"Banks didn't take it all that seriously," says Bob Meara, senior analyst at Celent, a New York-based research and consulting firm. "Then, lo and behold, eBay took off like crazy and PayPal enjoyed the ride, too."
Back then, the timing for a full-blown consumer rollout wasn't right: Online banking was still in its infancy, the economy was robust and banks didn't need new products to attract customers.
Today, they do -- and the timing is right.
Banks need new consumer-friendly programs to offset the higher rates they're charging, check writing is in rapid decline and P2P is a technology they've had for years, so little investment in infrastructure is required.
In 2009, Bank of America, Bank of the West, ING Direct and PNC Financial all jumped in with P2P online and mobile payment programs. Since then, a host of other banks have joined them, largely through the use of such third-party providers as Fiserv's Zashpay and CashEdge's Popmoney.
Unlike the PayPal model, you don't need to set up a separate account or know the bank account or routing transit number of your recipient to use many P2P programs today, just a simple email address or mobile phone number will do the job.
But banks may charge a fee for that service.
BBVA Bank, for example, charges $1 to send money via its ZashPay service but no charge to receive. Bank of the West charges the same for its Popmoney service, with a $3 fee for next-day deposit.
Bank of America, Wells Fargo and JPMorgan Chase recently announced a joint venture called clearXchange that will soon enable customers to send money quicker and easier by eliminating the middleman.
"They’ll be able to offer potentially a very low cost, faster and more user-friendly way to move money, whether person-to-person, business-to-business or consumer-to-business, by avoiding that whole ZashPay log-on authentication step," says Meara.
Ron Shevlin, senior analyst for Aite Group, a Boston-based research and advisory firm, says that's bound to improve security on electronic P2P payments.
"What the banks are basically looking to do is cut that intermediary out of it, so you don't need to set up separate accounts or tell everybody your account numbers and your email addresses," he says.
Shevlin says banks realize that the vast majority of electronic P2P payments are in fact C2B, consumer-to-business, whether you're paying a merchant on eBay or your rent or utility bill.
"They're often very small businesses, but they're businesses nonetheless," he says.
That C2B income stream is also something many banks would like to reclaim from credit cards and the very big banks that dominate that portion of the payment industry, even if it means waiving or reducing fees to get consumers onboard.
"They're looking to make some money through transaction fees and payment bundles, and they're thinking, if we can make it easier for people to transfer money to family and friends, they’ll become more comfortable doing that and we might see a higher dollar volume in the next couple years as that starts to take off," Shevlin says.
Will banks match the credit card issuers and offer zero liability for electronic P2P snafus?
"Yes, they'll have that," Shevlin says. "If you think about it, it's not a whole lot different from paying the bill online, where screw-ups happen like once in a billion payments. The banks will offer those liability guarantees until they're blue in the face because that's not where the problems are.
“The problems are generally in human error, not in electronic mishaps. This isn't people monitoring your airwaves and capturing stuff that you're entering; it's employees and poor security protocols. Those guarantees will be there, and because the banks will be collaborating with each other to create this electronic capability, it will be pretty efficient and effective."
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