Banking Payments

US Bank tests real-time P2P payment waters – an instant miscalculation?

US Bank tests real-time P2P payment waters – an instant miscalculation. Photo: Taber Andrew Bain, Flickr Creative Commons
Written by Gareth Lodge

Gareth Lodge estimates the average size of a P2P transaction, and looks at real-time P2P bank charges.

A recent article in American Banker suggests that US Bank is beginning to charge consumers $6.95 for an instant payment. To be fair, this isn’t far off what many bill pay sites charge for an expedited bill payment. That said, my purely unscientific estimate for his article suggests that it’s usually several dollars less.

In that instance, you can perhaps see the case: there are negative consequences for the payor for late payment, and the fee is often cheaper than the penalties that may be accrued. For the bill pay provider, there are card fees associated (as majority of expedited payments are card only), and a one-size-fits-all fee makes sense. An attractive business opportunity.

Having questioned the sense of a standalone real-time P2P solution originally (less than 6% of transactions are P2P in any market), I was truly stunned to see the American Banker article. Very little research is available as to the average size of a P2P transaction, but we can make some estimates.

Let’s assume it’s an average dinner check size – if the banks keep using that as the use case, then so shall I! I picked one random expense from a pile for dinner for when I was last in the US: $36 and change. This means that if someone had picked this up, I’d be paying 20% extra for the privilege to pay them back. And the cost to US Bank? ClearXchange fees are not disclosed, but to be an alternative to ACH, it’s fair to guess at a few cents at most, and EWS fees can’t be, well, $6.90. If they are, then they’ve fundamentally built the wrong solution.

Two takeaways

  1. Payments is a two-sided market. Building a solution for just the ‘P’ side severely restricts who you can charge, and what for. Indeed, the US is just about the only market globally to have created standalone P2P networks. In nearly all markets, consumers pay either nothing or very little for making or receiving payments. The money is virtually always made out of the business side of the equation, or other elements.
  2. While recognizing investments have been made, and costs need to be recovered, it’s important that payments are largely habit-based. It takes an awful lot to change people’s habits. Pricing at $6.95 is unlikely to drive as much volume or revenue as, say, 0.99c. As payment systems are pretty much fixed costs, driving volume will ultimately be far more rewarding in the long-term. We’re still using payment methods that are decades old. Instant payments will be here for at least as long.

– This article is reproduced with kind permission. Some minor changes have been made to reflect BankNXT style considerations. Read more here. Photo: Taber Andrew Bain, Flickr Creative Commons

About the author

Gareth Lodge

Gareth Lodge is a senior analyst with Celent’s Banking practice and is based in the firm's London office. His research focuses on payments.

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