Who Will Solve the Payment Puzzle?

Consumers and financial institutions seek a simple person-to-person payment solution.

April 1, 2012

While many person-to-person payment services exist, consumers and financial institutions are still looking for an easier method, reports The New York Times.

Nearly two-thirds of Americans give money both for birthday and holiday presents at least once each year, according to an Aite Group study. Another quarter handed off financial support, often to a relative. This adds up to 11 billion transactions and $865 billion annually.

Financial institutions want to develop a direct account-to-account system between financial institutions rather than sending consumers through third-party applications or down the check-clearing infrastructure, the Times reports. But such a system could mean taking on more risk or charging fees.

Among the payment services are:

  • ZashPay and Popmoney. Consumers log into their financial institution’s website or app; enter a payment amount; and then the email address, cell phone number, or bank account information for the recipient. The recipient receives a text or email asking them to enter their bank account information on a website. The money is then transferred to the recipient’s account.
  • PayPal offers a similar service. Recipients’ money ends up in a PayPal account; then they can transfer it to their own account.
  • Square. It’s a small device that plugs into cell phones, and allows a person to swipe others’ credit cards to obtain exact amounts of money. The service comes with a fee—2.75% of the amount swiped. 
  • clearXchange. It’s a collaboration of Bank of America, Chase, and Wells Fargo to provide a back-end system for processing payments. 

The Times points out big banks don’t fear PayPal as much as they do iTunes, Google, or Facebook, because they all attract so many younger users with mobile devices. And Facebook is looking for a way to recover revenue and influence lost to Apple and Google—and it believes mobile devices are the way to do it, according to Reuters. The company reported in its initial public offering that more than half of its 845 million active users accessed Facebook from a mobile device.