By Mitch Lipka
NEW YORK Feb 1 J.P. Pagoadacruz was sitting in
a restaurant with friends one night when he realized he had
forgotten his wallet. What might have been an embarrassment
turned out to be no problem, though, because he had remembered
to bring his phone. In a matter of seconds, he transferred money
to a friend, using an app for a payment service called Venmo.
The 30-year-old office manager of a San Francisco hotel is
part of a growing number of people who use a person-to-person
payment system to transfer money directly from their bank
accounts to those of friends and other individuals using mobile
phones, computers and tablets.
Pagoadacruz uses the Venmo system about twice a week for
splitting restaurant tabs or household bills, and says sending
money this way is easier than constantly running to an automatic
teller machine or writing a check.
"Just tap on their name, tap on the amount and send," he
Pagoadacruz's ease comes because the people he most often
exchanges money with are all signed up with Venmo. If he were
trying to send money to a new acquaintance outside the system,
however, that person might balk at having to go through sign-up
Besides Venmo, an array of new services are ramping up to
provide electronic payments between individuals. Others include
clearXchange, an emerging partnership of Bank of America Corp
, JPMorgan Chase & Co and Wells Fargo & Co
; Popmoney and Dwolla.
The oldest such company, eBay Inc's PayPal, mainly
handles person-to-business payments, but the company is also
making a stronger push in person-to-person transactions.
Such transactions are common in countries from Brazil to
South Africa, but have so far been slow to catch on in the
United States because of compatibility problems and security
In the past year, person-to-person bank transfers totaled
an estimated $21.6 billion in the United States, Javelin
Strategy & Research reports. But First Annapolis Consulting
estimates that such payments could grow to an $80 billion to
$120 billion market.
"It's one of the biggest growth markets - no matter what the
economy does," said Wayne Steiger, a payment industry veteran
and chief executive officer of FlowPay Corp, which connects
donors to charities for contributions made in a fashion similar
to person-to-person transactions.
TALKING TO EACH OTHER
When the system works smoothly, it makes daily life a little
less cash-dependent. Popmoney says that one-quarter of all its
transactions involve splitting rent payments. Other uses:
sending money to children, giving gifts and paying for domestic
services like babysitting.
Some systems also offer the ability to send out "reminders"
to someone who owes you money. For instance, you can send a note
to your roommates saying that they owe their share of the cable
bill. If a roommate clicks "yes," the system transfers money out
of his or her account.
While users worry about security, Tom Roberts, senior vice
president of Popmoney parent Fiserv Inc, said his
system is well-protected. "There's a whole series of things that
are designed that if a fraudster gets a hold of something, we
can take steps to prevent fraud."
Overall, the biggest problem is that the various services do
not yet talk to each other very nicely. "When it comes to paying
one another, in a whole variety of contexts, we're still sort of
living with last century's technologies," Roberts said.
Removing the communication problems between systems is a job
for the banks, but they have to have the will to tackle the
problem, said Javelin payments research analyst Aleia Van Dyke.
FlowPay's Steiger and others watching the industry agree
that what is needed is an alliance of the various platforms,
similar to how the once-disconnected ATM networks became
accessible to all.
The number of bank alliances signals that things could come
together soon. The three-bank partnership behind clearXchange
represents 37 percent of bank account holders in the United
States. Although Chase is part of the program, that bank is just
getting started. Spokeswoman Christine Holevas would not say
when the system, which is currently in testing, will open to all
the bank's customers.
Popmoney, which had just two participating financial
institutions in September 2009, now is working with 1,700,
including Citigroup Inc, Citizens Bancorp and PNC
"The good news is that U.S. banks have finally come to the
conclusion that this is the future," said Steiger.