Is This the Twilight of the Paper Check? P2P Payments on the Rise

NEW YORK (MainStreet) — The paper check may finally be about to vanish. It’s been a long time coming. In 2012, according to Federal Reserve Bank numbers, we wrote some 20 billion of them. That was down from nearly 40 billion in 2003 - but the 20 billion was such a huge number that few have been willing to predict a quick end of paper checks.

Until now.

The question has been: what’s a better way to settle IOUs? Suddenly a new answer is gaining favor, especially among Millennials. “Young people don’t write checks anymore," said Mary Monahan, an executive vice president with Javelin Strategy + Research, which focuses on financial services. "They are paying with person to person payments apps.”  

The other fact is that a greater proportion of the population does not suffer from digital anxiety.

“People just are getting a lot more comfortable with mobile payments,” said Jim McKelvey, a co-founder of mobile payments tool Square. He added: “People have to be aware they have this new power, and then it takes time for them to figure out how they want to use it.”

The new power McKelvey references simply is the profusion of person to person - p2p - payments apps on mobile phones. There are the traditional players - such as PayPal and Square Cash - and now there are many newer tools such as PayPal owned Venmo, Dwolla, and Snapcash via Snapchat (and powered by Square Cash).

Flashback five years ago, and advocates of p2p payments told stories of four co-workers going out to lunch, one puts the tab on a credit card, and the others - said the advocates - would settle up via p2p once they got back to the office. Just three problems with that scenario. The co-workers did not remember their IOU when they got back in the office bustle. They did not necessarily want to make personal payments using the company computer. And - lastly - p2p just did not take off at all.

That is all now changing, dramatically. A driver is that the mobile phone is with us everywhere and, with a few taps, bills can be paid while sitting in a restaurant eating lunch.

The other driver: “The utility of a network goes up as the network grows,” said James Wester, research director for IDC Financial Insights. That matters because more of us are signed up with p2p services and even more will be since now Facebook - with over one billion users - has announced it will offer p2p in its Messenger app.

PayPal, the granddaddy of p2p, had some 162 million active digital wallets, according to the company. Probably the fastest p2p velocity right now is with Venmo. From essentially a standing start, Venmo claims its 2014 payments volume was $2.4 billion. It adds that Q4 volume was $906 million, up 29% quarter over quarter.

Also, many industry experts believe Apple will soon offer its flavor of p2p. The company offered no comment when asked.

Either way, pretty much everybody you know will soon have some kind of p2p account. How are they using it? In research conducted by communications agency WalkerSands, the primary use cases for p2p were splitting shared expenses such as a lunch tab, a bar bill or a cab fare.

Others see more potential. Steve Shaw, a vice president at financial technology company Fiserv who is involved in the company’s PopMoney p2p offering - available through some 400 financial institutions, said Shaw - pegged the average p2p transaction amount at $400. Obviously the lunch splitting is still occurring but, said Shaw, genuinely big ticket expenses - such as sharing rent - are creeping in and that nudges up the per transaction average.

As for size of the p2p market, 451 Research predicts p2p payments will grow from $2.8 billion in 2014 to $12.9 billion in 2018.

The fact: more of us appear to be discovering just how convenient it is to pay with p2p. More services also are offering free or low cost payments. Venmo, for instance, is free for payments made via many debit cards; Dwolla charges a flat fee of a quarter for transactions of $10 or greater; PayPal is free for friends and families payments made via a bank account.

Case in point of today’s p2p users: Dave Sims, CEO of mortgage portal Floify, who said: “I just got a bill from my lawyer yesterday and am initiating payment to them via Dwolla. They are perfectly happy to accept payment via Dwolla. It's so easy for me: a few mouse clicks, no assembling a check/envelope/stamp, transparency while the funds flow.”

Bedford Stuyvesant, Brooklyn landlord Bill Irwin said he has his tenants pay him monthly rent -- $3,000 -- via Venmo. "It has been very convenient for everyone,” he said. 

New York marketing strategist Matthew Hurst said he recently used Venmo to get reimbursed for some two dozen tickets he bought for friends to Medieval Times. “Only a few chose to pay me in cash,” said Hurst. He added: “Using Venmo has become second hand between me and my friends; sometimes they'll even say ‘just send me a bill on Venmo’ when we're paying as a group. A few of my friends prefer using PayPal, but no matter what they're using to pay, it's easier than depositing a check in the bank.”

Bet on it. P2p’s rising popularity is writing the obituary for paper checks. Do you know where your checkbook is? And also a stamp? Do you care?

—Written by Robert McGarvey for MainStreet

This article is commentary by an independent contributor. At the time of publication, the author held TK positions in the stocks mentioned.

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