 | | NEW CHART & DATA: PAYMENTS | | Here's how P2P payment providers intend to grow volume, offset costs, and increase profitability in the year ahead… Digital, and especially mobile P2P payment platforms continue to grow in the US as more users seek out fast, inexpensive, and convenient ways to transfer funds. That market is driven by a few major players, including Venmo, which processed $34.6 billion in 2017 and Zelle, which saw $75 billion in the same period.
But the landscape is changing. Bank-based offering Zelle, which is available through users' banking apps and as a third-party service, dwarfs its peers, but is growing more slowly than third-party services and sees most of its volume from a few banking heavyweights. Smaller players, like Snapchat's Snapcash offering, have shuttered. And Venmo, long-crowned as the industry giant, is seeing a slowdown in downloads relative to Square Cash, according to data from Sensor Tower and Nomura Instinet.
 | | | | * This chart and the related data were featured in the most recent edition of the The Payments Ecosystem Report, which is available to Ultimate Payments Research Bundle subscribers. You can get access to this report and other timely updates when you sign up today. |
| Here are some other key points from this chart:
- As P2P grows and evolves, profitability is becoming a big challenge. Physical P2P payments don't come with surcharges, and users aren't interested in paying for them digitally either. But P2P isn't free for providers — PayPal and Square, for example, pay per-transaction fees, and Zelle is enormously expensive for banks to operate — which means that the service is often taken at a loss. PayPal, for example, attributes two-thirds of the decline in its take rate to surging P2P popularity. This is driving a push to monetize, through value-added features that come with fees, to compensate for that gain in volume.
In that vein, a few developments designed to grow volume, offset costs, and increase profitability should set the tone and continue to drive growth in the year ahead: - New users, of different ages and banking statuses, are coming to P2P services. Historically, digital and mobile P2P offerings were millennial-focused. That's still true — 75% of millennials have used these tools. But older users are warming up to the idea of digitally transacting money, with 51% of boomers and climbing having used a digital P2P service. These users, who are especially drawn to bank-based services, could bring new customers and additional volume into the ecosystems. At the same time, unbanked and underbanked users, who previously couldn't access digital P2P services that required a debit card or bank account to join, are getting more access to the ecosystem through new cash top-up initiatives, virtual cards, and other bank-like features. These groups could also expand digital P2P's addressable base in the coming year.
- New tools, like debit products, buy buttons, and instant cashout, are encouraging loyalty. P2P can be challenging for providers, since it helps grow customer base and volume, but can eat into margins, thanks to challenges with monetization. The need to continue to grow while also improving profitability is leading players to launch a bevy of new features, including in-store and online payments, physical and virtual prepaid-type cards, instant cashout for a nominal fee, and cryptocurrency trading, among others.
- Players worldwide are also looking to duplicate the US model. Digital P2P platforms aren't as popular in non-US markets. But major players are emerging abroad, including France-based Lydia, which raised €13 million ($14.8 million) earlier this year and moved into new markets, and Australia bank-based joint venture, Beem It. If these services start to take off, international P2P could be fruitful for both US players with access to global markets as well as local players looking to replicate a successful model.
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