P2P Payments Update + MA/Vocalink

9Mar 2016

Short blog. I can’t believe it has been 5 years since I wrote Real Time Money Transfer in US. This week we see rumor that Mastercard is looking to make 1B GBP bid to buy Vocalink. Per my Apple and P2P blog there are 4 primary options for “real time P2P” in US:

  • FIS/Vocalink/Paynet
  • Mastercard
  • Visa
  • ClearxChange/Early Warning
  • (FUTURE) Real Time Payments with TCH

Bank View

Back in 2006, my team at Wachovia was the third bank in the US to turn on instant money movement through Cashedge. Just 10 years ago banks wouldn’t let you move money to ACCOUNTS YOU OWN at other banks. Why? They were concerned about deposit run off… and enabling rate based competition. Instant transfer to another person wouldn’t come until POP Money in 2008 with BAC and Citi taking the lead.

Bank innovation is SLOW and tends to REACT to market developments. A2A and P2P delay wasn’t just concerns about fraud it was that moving money at speed was not in the banks’ best interest, it competed with wire transfers ($20/request)..

Visa and Mastercard introduced that OCT/AFT transaction sets back in the 06 timeframe, and while initially they were pushed back by banks (because of dynamic above), their long term view and persistent “network requirement” has now paid off. 98% of US banks now support these transactions. Mastercard is the clear leader with Square Cash, Venmo, Google Wallet all using their debit card based service.

IMPORTANT.. Google EATS $0.50 per transaction.. so the BANKS are racing to build a better service that will operate at a loss?

I told my bank friends that the cat is out of the bag.  While the Clearxchange/EWS service is clearly the most beautifully designed infrastructure service, that integrates fraud, funds availability, and ACH … member banks have a accepted a network standard that provides alternate access to money transfer (banks would say we “ENABLED A BACK DOOR with OCT/AFT”). Mastercard is winning here because they are the network switching infrastructure for smaller companies (ie Venmo) to build a great consumer experience (see specifics in last para).Venmo-Full-Image

Clearxchange/EWS is the right bank model.. enabling “real time” on ACH. But they will have a HUGE problem catching up with the networks and they consumers adopting network/debit based schemes that are just awesome experiences. I’m not going to even bother discussing the TCH scheme as it has neither the fraud integration, nor the bank sponsorship, and seems to be a project without a purpose (ex emergency bill payments).

Banks lost eCommerce Payments to Paypal, and now have lost P2P to Venmo and others.. err PayPal too… with great assistance from Mastercard. Their only hope to regain traction here is with Apple.. but can Apple replace Venmo? Should they want to? As I stated previously, P2P in general is an awful space littered with the corpses of failures. Venmo is the only company that has made P2P a successful standalone service. P2P can increase the value and stickiness of existing networks (ex Facebook/Whats App, Google, Apple, …) but it is a loss leader. Google has been doing free P2P for over a year.. my guess is less than $500M in volume (at a 25bps loss).

The goals of Venmo, Apple and Google are to deliver value. The goals of the bank is to retain control (stop V/MA). Is there any wonder why Venmo wins? Which entity is more focused on creating a great consumer experience? Jail-toilet

Perhaps I should adjust my Banks will WIN in Payments blog.. to address the timing and network effects side (let out of jail). Banks can’t win if they enable faster payment within existing networks.

Mastercard and Vocalink.

Vocalink is the most significant payment utility in the UK. It underpins the provision of the Bacs payment system, the Direct Debit system, the UK ATM LINK switching platform covering 65,000 ATM’s and the UK Faster Payments systems.  The US metaphor is a combination of STAR, TCH, Commercial Wires, and real time ACH that we don’t do. This is a brilliant move for Mastercard as it helps to embed them in the continents primary financial hub as the destination or origination infrastructure.. and helps position them for further growth in commercial payments and financial market settlement at a time where Visa is growing a significant bank footprint (Visa Europe Acquisition).

Why is Mastercard winning all of the P2P in the US? They bought Omney (which contains some of Obopay’s old assets) and are tied up with Cross River bank out of NJ.. it enables them to bridge Visa, Mastercard and ACH transactions in network.. Mastercard is perhaps the only bank to move funds from card or account. When you meet with Mastercard on moneysend Rodney Robinson (ex Obopay) shows up to meeting.

7 thoughts on “P2P Payments Update + MA/Vocalink”

  1. A little nitpicky, but I believe Square Cash runs on Visa’s network.

    Thanks for the insight.

    I wonder if PSD2 might have a role to play for MA’s bid.

    1. Thanks Tyler.. appreciate your views.. I believe Square cash started out using unreferenced refunds via Acculynk.. have also heard that Omney (Obopay’s old assets are somehow tied in) with Cross River Bank.

  2. Disclosure: I’m a big fan of Ajay Banga. His P2P play is much more ambitious than any US Bank’s view. If you have connectivity (direct or through a reciprocal agreement) to most every financial institution on the planet, it’s your duty to find a way to make use of those connections.

    The vision here isn’t to enable Venmo – you even touch on it above. Vision is to use a globally connected hub to facilitate a wide range of use cases account-to-card (Google Wallet), card-to-account (Square Cash), card-to-card (Google Wallet), cash-to-card (retail loads), card-to-cash (money send to an emerging economy), mobile-to-account (m-Pesa), cash-to-mobile (m-Pesa top up) etc etc

    Visa will have to swallow Visa Europe to compete with MasterCard. And Ajay has a bigger “why” than most – he’s looking to bring the next 2B people into the financial mainstream.

    On the P2P service running over MasterCard rails in US – a few things to think about. I store a debit card to send and a second user stores a debit card to receive. On the surface that looks like there might be two interchange events.

    Given that the price elasticity of demand for P2P services in US is = -infinity

    So running over the payment networks rails means someone will have to absorb the cost other than the consumer (platform, issuers?)

    Note that I was specific above about debit card to debit card. PayPal may be the only company that truly understands risk of card to card money sends. And credit cards on the send side is what will lead to even more of those carcasses littering the landscape.

  3. back in 1996 I started transferring money between two banks, two currencies, in countries (Switzerland and Belgium). For 5 CHF the value was transferred with value date +2. I moved back to the USA in 2001. I needed to transfer money from Europe to the USA, that was easy. I then needed to transfer money between two banks in two states (New York and Minnesota). The New York bank mailed a check to the Minnesota bank, net result 7 days to move dollars within one country. In both situations I initiated the transfer through a Web interface. The wonders of technology and the realities of legacy and lethargy.

  4. When I read this blogs I always get the sense that they are slanted towards the large encombants networks. No matter the topic it says Visa or MasterCard are going to win. Banks don’t stand a chance and the tech giants outside of Apple are never going to make it. Apple however, best thing since sliced bread. Venmo was a horrible business and was sold because their model like all p2p is a loss leader. PayPal picked them up through the Braintree acquisition but only after Venmo brought to a pond stocked full of fish was it able to grow. I am not sure I would call that a success.

Leave a Reply

Your email address will not be published. Required fields are marked *