Digital money transfers — sending money to another person via digital platforms — is a modern convenience that makes transferring funds easier, quicker and enables remote sends.
To start, let’s note the distinction between digital money transfers and an electronic funds transfer (EFT), which is the electronic transfer of money from one bank account to another. EFT covers transactions such as direct deposits, credit and debit card transactions, wire transfers, and online bill payments. While a money transfer app or site can add the option to include connections to bank, credit and debit card accounts, it’s the peer-to-peer (P2P) experience that we want to focus on for this post.
There’s also potential cross-over with remittance transactions — sending money cross-border to another person. While many money transfer apps (e.g. Venmo) or sites only work within one country, a few are starting to include cross-border payments, which technically count as a remittance. However, to simplify the situation, let’s only consider P2P payments between friends and family locally.
Digital Money and Banks
The industry is experiencing significant growth. For example, in Canada the Interac e-Transfer service grew 52 percent in annual volume in 2017 and had 41 million transactions totaling over $92 billion. Interac is a not-for-profit Canadian interbank network that links financial institutions and other enterprises for the purpose of exchanging electronic financial transactions. e-Transfer connects bank accounts through users’ confirmed email addresses and requires a security question on each transaction.
In the US, a group of 60 banks came together to create Zelle. The app allows users to send payments to anyone with a US bank account, but to receive funds the user needs to have the app (or have a bank app that includes the service). The user needs to only know the phone number or email address of the recipient and trust that person; it’s not built for general transactions, such as buying goods from a person online. At the end of 2017, Zelle was adding 100,000 users a day.
Digital Money and Fintech
The offerings from the banks are, in many cases, in response to the numerous transfer services from disruptors in the fintech space. These range from digital money giants offering a host of other money services besides transfers, to dedicated transfer apps which only dedicate themselves to the task.
Perhaps the best-known is Venmo, now owned by PayPal. According to Verto Analytics, Venmo had 10 million unique monthly users as of August, 2017. The app allows you to pay other Venmo accounts using a phone number or email as well as finding accounts through Facebook. While a three percent fee applies to credit card payments, all other transfers are free.
Besides the low-fee structure, Venmo adds to the user experience by featuring various social elements. By default, payments are announced on the user’s public feed and others can add comments or emojis. To protect privacy, the specific transaction amount isn’t listed and the parties can also limit the feed to just friends or make it private. Venmo also provides a bill splitting function that makes it easier to pay restaurant bills, buy tickets and other group purchases.
Another transfer app that’s gaining significant traction is Square Cash, which has seven million users as of December. As opposed to keeping money in an account with the transfer company, the Cash app sends funds directly into (or from) a user’s debit account. For individuals, transfers are generally free, but a transfer to a company charges the company a transaction fee.
Many well-known tech companies are adding transfer capabilities to their service offerings. For example, communication apps such as Facebook Messenger and Snapchat (Snapcash) allow users to easily add a payment to a message. eWallet providers such as Apple Pay and Google Pay have added the P2P function to expand their offerings.
The Future of Digital Money Transfers
For many payment services, P2P is a service to drive consumer acceptance, rather than a stand-alone, revenue-generating business. Proof of that model is indicated in the typical fee structures; low or no-fee offerings are a way to gain market and mind share. Once they get the app into people’s hands, they then can leverage that with payments for businesses, remittances or for a variety of other financial services.
There’s a significant opportunity ahead for the industry. In the 2017 TSYS U.S. Consumer Payment Study, only ten percent of consumers have loaded up credit card information onto a eWallet. However, 31 percent are definitely or likely to do so, and that number could grow as more people become comfortable with the technology.
“The payments industry is changing rapidly,” says Allen Pettis, executive vice-president and chief customer officer of issuer solutions at TSYS. “Consumers are ready for change and adapting to the ever-evolving payments industry as new solutions are introduced.”