There are a lot of mobile payments companies – and a lot of prepaid/mobile combo products – that are focusing on person to person, or P2P payments. It’s not surprising – this is a payment domain still dominated by cash and check. Introducing a new P2P product also avoids all the messy complexities of terminals and the point of sale. Of course, the challenge in this domain has always been the business case – particularly for domestic P2P transfers. There hasn’t been a lot of evidence of consumer interest in paying to pay – or receive – payments from friends and family.
So it was particularly interesting to see an important incumbent in the P2P arena, CashEdge, step into the mobile P2P arena with their new product, POPmoney. CashEdge is a behind-the-scenes player that supplies banks with services to allow their customers to move money electronically. The Company started by enabling transfers from a customer’s account at one bank to the same customer’s account at another bank – so called “me-to-me” transfers. They have since expanded the offering to handle third party transactions (“me-to-you”). Several hundred banks are currently their clients, including seven of the largest ten banks. CashEdge transferred over $50 billion for banks in 2008.
The POPmoney product, which again will be offered to banks, is, from their viewpoint, simply a logical extension of their platform. I spoke with Neil Platt, SVP & General Manager, US Banking, about the launch.
Understanding how POPmoney works means understanding their basic platform. CashEdge effects the P2P transfers by “doubling up” – doing two payments transactions: one an ACH debit to the sending consumer’s account, and one an ACH credit to the receiving bank account. (This doubling up is common with new payments products – for example, PayPal or Decoupled Debit). As we all know, the ACH debit half is the tricky piece of this transaction. An originator of an ACH “ad hoc” consumer debit is exposed to both fraud risk and NSF (insufficient funds) risk. There are several components to the fraud risk. CashEdge is nicely covered from the first major source of fraud: a consumer giving another consumer’s bank account information. Since the CashEdge transaction starts at the consumer’s bank, that bank in effect can vouch that an account belongs to the consumer in question. There are more complicated fraud schemes which can still be perpetuated, and the management of this is part of what CashEdge does for the banks.
Interestingly, the consumer sending bank does not vouch to CashEdge for good funds in the consumer account (you’d think they could, but maybe it is too complex to hook into the debit authorization infrastructure of the bank). CashEdge offers options on its product to deal with this: one is a transfer which is not good-funds-guaranteed (in other words, CashEdge can reverse it) and one which is guaranteed, but where the second leg of the transaction (the ACH credit to the receiving bank) is delayed for a few days in order to manage that risk.
So, back to mobile. How will banks offer this to consumers? Platt believes that most will make it a function of their mobile banking offerings. Some may create a stand-alone product. The very attractive feature is that the only thing the sending consumer needs to know is the email address or the mobile phone number of the recipient. The recipient will get an email or text message along the lines of “you’ve received funds from (name),” and will direct them to go to their financial institution or the POPmoney.com hub to collect the payment. (There will be options for consumers who have accounts at banks who participate in the service, and also for consumers who don’t.)
Consumer pricing, of course, will be left up to the bank. Experience tells us that it is unlikely that most consumers will pay for this – but there are people that think that “mobile changes everything”, and in a mode of spontaneous, small-dollar purchases (can you say ring tone, anyone?) agreeing to pay some small transaction fee to send money might yet work.
I think it’s likely that banks won’t be able to charge explicitly for this service, and will end up incorporating it into their basic account package. (That’s what happened to me, when I lived recently in Canada. The Interact P2P transfer service was bundled – up to X transactions per month – into my overall Bank of Montreal account package.) So why would a smart bank provide consumers with yet another service with no incremental revenue? It could be that those smart bankers are getting very nervous about the non-bank mobile payments offerings – and think letting consumers send money out of the bank as a good way of keeping money in the bank over the long run!