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posted on 24 October 2015

I Want My Two Dollars!

from the Atlanta Fed

-- this post authored by Jessica J. Trundley

Dizziness and nausea come over me sometimes when I have to pay individuals. My mind scrambles. I don't carry cash or have checks. What grueling, lengthy steps will I have to go through to pay this person? Besides worrying about forgetting to meet my financial obligation if I don't pay right now, I find myself crossing my fingers behind my back hoping they have the same mobile app as I do.

Or maybe we use the same bank, with any random luck. I picture myself as Layne Frost, the character played by John Cusack, from the movie Better Off Dead, with the paperboy at my doorstep insisting, "I want my two dollars!"

From bartering to exchanging livestock and shells, from cash and coin to checks and now mobile, it is inevitable that people will always find a way to pay and be paid. Forrester Research forecasts that the U.S. mobile peer-to-peer (P2P) market will grow to nearly $17 billion in transaction value by 2019. Yet the United States P2P payment volume by instrument is still largely cash-based, followed by check. Forecasters are planning on migration from over 6 billion cash and 2.1 billion check P2P transactions to the mobile space. Who will win the lion's share of paper-based P2P payments as people embrace electronic payments?

Let's look at the P2P payment lifecycle before you make your predictions:


My expectation is that everyone in the P2P space today faces challenges in getting there from here. Some will have a handsome share of the market but in doing so may suffocate opportunity for ubiquitous solutions that will benefit consumers nationwide. Fragmentation is our obstacle in P2P today. If both Ps don't have something in common (for example, financial institution, phone manufacturer, mobile application, social media, branded debit card), then the payment can't occur and...back to the basics we go. Cash and checks are accepted by almost everyone. Moreover, cash eliminates the middle part - cash means finality of good funds, sender to recipient, instantly.

All P2P access channels, or funds load, providers who offer accounts to consumers - whether these providers are financial institutions; virtual wallets like Google and Paypal; mobile/online applications like SquareCash, Venmo, or Dwolla; or prepaid accounts like Bluebird or NetSpend - should be able to access a directory to process payments from anyone to anyone. Ubiquitymeans debit card or not, banked or unbanked, same state or not. This can be achieved when financial institutions cooperate through open access to a directory, since all nonbank P2P providers ultimately use a bank to conduct the business of processing payments.

There is an option that could surpass directory deliberations. Bitcoin's blockchain technology, like cash, can eliminate middle participants - like cash, it is finality of good funds, sender to recipient, instantly. Perhaps the directory will be technology nonpartisan and connect all payments. Until then, I'll keep crossing my fingers when the paperboy shows up.


About the Author

Photo of Jessica J. TrundleyBy Jessica J. Trundley, AAP, payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed

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