In what many considered an inevitability, Apple recently announced that it will finally add person-to person (P2P) payment functionality to its iMessage platform later in 2017. Transactions will be funded via Apple Pay, and funds received will be placed in an Apple Pay virtual debit card held in Apple Wallet and managed by prepaid card partner Green Dot. While the underlying economics of the P2P transactions in Apple Pay are unclear, and likely hindered by growing commercial restraints as part of the card networks' tokenization frameworks, iMessage P2P functionality is likely geared toward getting prepaid funds into Apple Pay and driving consumer usage. However, with growing numbers of markets moving toward full immediate payment implementations and subsequent consumer-orientated overlay services, the convenience factor of social messaging P2P services will face increasing competition.
Banks will dominate the mobile P2P space in the near term
Over the past few years, P2P has emerged as a hygiene factor on many digital wallet platforms. Unless funded by a credit card, such services typically come at no fee to consumers for domestic transactions, with the wallet providers funding the processing fees for the transactions themselves. In an ideal scenario, funds are then spent by consumers rather than transferred out to a bank account, in turn generating interchange revenue or at the least balancing out the cost of funding the original transaction. Apple's moves into P2P follow on the heels of similar platforms in the US, including Venmo, Square Cash, and Google Wallet, as well as the proliferation of social messaging platform payments in Asia-Pacific, most notably in Alipay Wallet and WeChat Pay.
While P2P adds a missing function from the Apple Pay ecosystem, its overall impact will likely prove muted longer term. Aside from compatibility issues – it works only with iOS devices, which in the US constitutes roughly 40% of the market – competition from existing issuers is increasing significantly. The growth in bank-led mobile P2P is being driven by the global expansion of immediate payment infrastructures, making clearing and settlement directly to user bank accounts increasingly convenient and fast via one interoperable system. This in turn is aided by the expansion of open APIs in financial services, which hold the potential to create a better user experience, including though the use of plug-ins to existing mobile banking app platforms. Markets such as the UK, where immediate payments are well-established, already have overlay P2P services (with mixed levels of usage), and hence these markets see little need for additional third-party P2P services.
Even the US market, notorious for its multiple networks and continued use of checks, is finally making progress in immediate payments and P2P, most notably through The Clearing House's move toward real-time payments, alongside the recent launch of industry consortium Zelle. By adding convenience and functionality to existing financial services apps, this is likely to prove popular with consumers and businesses alike.
Longer term, the growth of APIs in financial services and the continued development of immediate payments, including for cross-border transactions, suggests the market will likely reach a point where bank-led P2P services will be able to integrate relatively easily into other social messaging platforms.
"Visa underlines its credentials as a technology player with the launch of Visa Developer," IT0059-000052 (February 2016)
Tokenization in the Payments Value Chain, IT0059-000027 (September 2015)
"Visa's Digital Enablement Program is shaking up the economics of mobile payments," IT0059-000017 (July 2015)
Gilles Ubaghs, Principal Analyst, Financial Services Technology