US Noncash Person-to-Person Market Reaches $1.1 Trillion in 2008

Defined by TowerGroup as a consumer-initiated transfer of funds to another consumer using multiple channels and payment methods, P2P payment methods have evolved over the past few years with the advent of the Internet and mobile devices. These payment channels are continuing to grow, as financial institutions look to offer alternative new methods to transfer payments using online fund-transfer modules and mobile platforms. P2P is becoming an essential ingredient for financial institutions as they look to attract a new audience that is interested in on-the-go solutions that are lower in processing cost and greater in functionality.

Despite the availability of these new payment methods, consumers continue to use checks, which represent a net loss to banks on an item basis. TowerGroup estimates that P2P check volume is declining at 10 percent year to year. More important, it is costing an estimated $255 million to process these transactions.

“Banks are losing money hand over fist as they absorb the processing costs associated with every check transaction,” said Jennifer Roth, research director in the Global Payments service at TowerGroup. “The advent of the Internet and mobile devices are driving financial institutions to innovate and adopt new, more cost-effective and convenient means for their customers to transfer and process payments. However, in order to garner additional P2P market share and convert checks to electronic alternatives, financial institutions must create simple, low-cost, and convenient alternatives with flexible funds accessibility.”

TowerGroup expects 2009 to be a crucial year for financial institutions to incorporate P2P solutions so as to retain customers and acquire new ones. To keep a competitive edge, institutions must expand the reach of their business beyond a branch footprint using solutions and options available today. These options range from cobranding partnerships with alternative payment delivery providers such as PayPal and Obopay to private-labeled third-party solutions across multiple delivery channels and payment networks.

Additional highlights of the research include:

• Over 3 billion P2P transactions occurred in 2008.
• In 2008, checks represented over $1.013 trillion of the noncash P2P payments in the United States and cost financial institutions what TowerGroup estimates as $255 million to process.
• Spurred by the continued consolidation of financial service institutions (FSIs) and the establishment of new bank holding companies, TowerGroup believes, account-to-account (A2A) transfer volume will reach a projected $127 billion in 2012.