According to a WSJ article, person-to-person payments in the US total around $900 billion annually and include cash, checks, internet, and mobile payments. Almost all banks and payment processors, including PayPal, offer standard capabilities for online and mobile money transfers. Additionally, important players in the domestic and international person-to-person payments market include money transfer companies like MoneyGram and Western Union. The market leaders, banks and money transfer companies, have solid networks and procedures in place to serve a sizable international customer base. However, there are more and more new disruptive companies entering the market for person to person payments. These new players are challenging the incumbents with two key weapons: convenience and reduced fees.Three new groupings of participants in the market for person-to-person payments are posing a threat to the incumbents.
The first group includes telecommunications and retailers. Walmart recently announced a new money transfer service that enables their customers to transfer money up to $900 in more than 4000 shops across the US, surprising everyone with the news. The new service differs from the one Walmart previously offered in collaboration with MoneyGram. Customers of Walmart find the offer to be highly alluring because the fees are far cheaper than those of the competitors. This enables Walmart to reach a sizable group of unbanked consumers who find it simpler to visit a Walmart location than a bank. Additionally, having more money in the customer’s wallet encourages them to make more purchases.
The second category consists of online businesses that excel at bringing people together, such as Facebook, Amazon, and Google. Rumor has stated that Facebook is considering purchases to join this market. Consider the ease with which you can engage with friends and family via Facebook or WhatsApp while sending money to them. In addition to offering convenience, their typical business model relies on no or minimal fees. In the majority of US states, Facebook already has a licence for financial services. It’s rumoured that Facebook will obtain the eMoney licence in Ireland for its European operations.
The third category consists of a fresh batch of participants in the international money transfer industry, which accounts for a sizable portion of the person-to-person transfers coming from the US. In comparison to banks and other money transfer companies, TransferWise has very competitive rates for international money transfers. Real-time comparisons are provided on their website. According to TransferWise, they provide forex at a mid-market rate with more open dealing and a single service charge.
Their platform is their key USP because it doesn’t transfer money for every transaction; for example, if someone needs to transfer money from the US to the UK and another customer wants to transfer money from the UK to the US, the domestic transfer is handled first, and an international transfer is only started for the remaining amount. There are rumours that TransferWise is one of the businesses Facebook is looking to buy in order to enter this market. Another B2B business in this field is called The Currency Cloud (TCC). It provides a software platform that is cloud-based. On the basis of their cloud platform, businesses may integrate and create apps and send money abroad at mid-market rates. The complete payment lifecycle is provided by them. The German online-only bank Fidor Bank employs a TCC product. Another one of TCC’s customers is TransferWise.
While Walmart’s approach appeals to a portion of the domestic person-to-person payment market, other new entrants pose a danger to the internet, mobile, and global person-to-person payments. Banks are better equipped than money transfer companies to adapt to the changing scenario. A possibility is to lower the fees and increase the amount of transactions captured to make up for the income loss. Altering the business model to encourage customers to utilise more of their other goods and services in exchange for lower costs on things like money transfers could be another option. A Facebook or Twitter app might be used by banks to enable person-to-person payments on social media platforms. BPCE Group, a French financial organisation, recently introduced a service that enables users to tweet money to one another.
Although the new, innovative services have attracted a lot of attention, these new companies still have a ways to go before they have the trust of their clients to conduct their financial transactions through them. Banks now have a nice window of opportunity to effectively plan for and respond to emergent players’ risks.