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Peer-to-peer payments - A crucial component towards a cashless society

The Corona crisis has led to an exponential decrease in the usage of cash, due to the associated hygienic problems and the enormous rise of eCommerce.
While in commercial transactions cash is disappearing rapidly, it is however still commonly used for informal money exchanges, like between friends, family, colleagues…​, but also those payments are becoming more and more digital, thanks to peer-to-peer payment (P2P) solutions.

These solutions drastically improve the user experience (removing friction) for both the person initiating the payment (= the payer) and the person receiving the payment (= the recipient), compared to a simple initiation of a wire transfer in a banking app.

Before clarifying where those solutions bring most value, it is important to first identify the typical use cases, where peer-to-peer payments are most common, as the P2P payment solutions need to optimally accommodate these use cases:

  • Family giving a cash gift (e.g. grandparents giving cash to their grandchildren)

  • Reimbursing a colleague or friend who bought something for you (e.g. brought a sandwich along for you at lunch hour)

  • Reimbursing a friend who borrowed you some money

  • Collecting money for a gift for a colleague (for the birth of a child, a wedding, a retirement…​)

  • Splitting bills during an activity, weekend off or holiday amongst friends, family, colleagues…​

  • Shared expenses with your partner, neighbors, housemates…​ which need to be settled

  • …​

standard wire transfer can perfectly be used in those use cases, but this comes with several inconveniences:

  • You need to exchange (or know) the IBAN number of the recipient

  • You need to input all necessary info, like the IBAN, amount and an optional comment

  • There is a high risk of making mistakes in the input, but also in the communication of the amount to be reimbursed

  • The recipient is not notified, meaning he has to check regularly if a reimbursement has already taken place

A good peer-to-peer payment solution is all about ease-of-use, convenience, and speed and resolves the above issues by:

  • Facilitating the sending of money, i.e. a payer can identify a recipient via his phone number or another more intuitive alias (like email, name…​), instead of via his IBAN number

  • Facilitating the receiving of money either by allowing the recipient to generate a QR code, which can be scanned by the payer or by sending a payment request (if the payer and recipient are not in proximity)

  • notification (beep) received by the recipient when a payment is received

Additionally a good P2P payment solution also needs to:

  • Be simple to set up, i.e. an easy and intuitive sign-up (including defining any aliases) and linking of a bank account, debit card or credit card.

  • Be well secured, via a password, a PIN code and other verification information, via automated checks for abnormal payment patterns and via notifications when money is sent or received

  • Have low transfer times, i.e. the time it takes for the money to transfer (i.e. ideally only a few seconds) from the payer to the recipient

Apart from those measures to remove friction from the process, a P2P payment solution can also provide several value-added services, like:

  • Split-bill capabilities: allow to split one or more amounts paid by different people to a group of people. Typically this service has following features:

    • Allow to setup one or more groups and invite people to a group

    • Input one or more expenses and indicate which persons are involved in the expense (or automatically derived when expenses are linked to a group)

    • Splitting the expenses automatically in reimbursement requests, supporting multiple split-scenarios, like equal divide or specific divide (input of % of bill or input of amounts)

    • Allow multiple persons to input expenses in an expense group and automatically calculate the lowest number of transactions required to get everyone reimbursed

  • Reimbursement handling:

    • Attach expense notes: when sending a reimbursement request, automatically attach to the request the concerned expenses and the calculation for the amount of the reimbursement request (e.g. which split was used on the different expenses).

    • Automatically generate structured comments, so that a payment transaction on an account can easily be linked back to the expense information. The expense section should therefore also allow to search on a structured comment of a transaction to find back the corresponding expense(s).

    • Partial reimbursements: when you receive a payment (reimbursement) request, allow to pay it only partially. Obviously both the recipient and the payer should be informed and kept aware of the outstanding remaining amount.

    • Reimbursement plans: automatically start a plan to reimburse an amount over a given period (e.g. in monthly annuities).

    • Follow-up of reimbursements: parties should have a clear overview of all paid/received payment requests and outstanding payment requests. Furthermore it should be possible to define alerts for outstanding requests and to be able to automatically and/or manually send reminders (as a recipient) to a payer.

  • Pay with different payment methods: while most P2P payment solutions are only linked to one payment method (i.e. a P2P wallet, bank account, credit card or debit card), it can be interesting to allow the payer to choose between different payment methods (for each payment). This can be a traditional payment method (like debit card or credit card), but also a payment with social vouchers (like meal, eco, gift or sports & culture vouchers). As these social vouchers have legal obligations that they can only be spent for specific products and in specific stores, it is important to be able to link a social voucher payment to an expense, which is eligible for the chosen social voucher.
    Furthermore when supporting multiple payment methods, it should be possible to pay 1 transaction with different payment methods (e.g. pay part of a transaction with a gift voucher and the remainder with a bank account). Ideally the different instructions should be handled as 1 transaction for the user, meaning payment is only done, when all underlying instructions are successful.
    Obviously when supporting multiple payment methods and also multiple instances of the same payment method (e.g. different bank accounts or different credit cards), the selection of the desired method and wallet/account/card can become complex. Ideally the tool should be able to derive a maximum what would be the best option to execute a payment. This can be based on experience (AI model) or based on rules provided by the user.

  • Expense Management: when offering the split-bill capabilities, allowing to pay with social vouchers or give the necessary transparency on a payment request, it is essential to offer good expense management capabilities. This consists of:

    • Scanning receipts and automatically identifying expense characteristics via OCR (with possibility to correct in case of wrong identification)

    • Automatically identifying expenses from bank accounts (e.g. via PSD2) or from credit card bills

    • Possibility to add meta-data to expenses, like a category, labels, a description, the persons involved (for reimbursement), the split structure to be applied, some memories (like pictures or a funny note/anecdote)…​

    • Support a validation process (e.g. by someone else in an expense group)

    • Allow to search and filter on expenses and see the details of an expense.

    • Allow to perform bulk updates to a number of selected expenses, e.g. assign a category or label, add person(s) involved in expenses…​

    • Allow to export expense information (of all expenses resulting from a search or filter) in easy formats, like CSV, XML, XLS…​

    • Expose an API to PFM apps and other apps, which can collect category information and expense information. This expense management tool could be further built out to become your full expense management solution, not only for expenses for which a P2P reimbursement is required, but also for all your private and professional expenses. As such the app becomes your repository of expense notes, which can be integrated to multiple other systems like:

      • An expense tool of your employer to get reimbursed by your employer

      • Communicate expenses to your accountant, potentially via an accounting platform like TOCO, YUKI…​

      • PFM / BFM apps, as expense notes allow to get more insights into your expenses (better categorization and possibility to split 1 debit transaction in multiple categories)

      • Management of guarantees (warranties) for which the ticket receipt needs to be kept as proof

  • Multi-currency support:

    • The tool should support multiple currencies, i.e. allow the possibility to input expenses and payment requests in different currencies

    • The tool should support the automatic conversion of expenses, e.g. expenses in USD, but reimbursements in EUR. This conversion can be done based on market exchange rate or based on a manually inputted exchange rate.

    • The tool could even provide a financial service to hedge the risk of fluctuating exchange rates, i.e. the provider behind the P2P payment solution committing on a specific exchange rate during a period (obviously at a service cost for taking over the exchange rate risk).

  • Gift handling: allow to do a P2P payment as part of a gift, by facilitating the process and making it less transactional. Examples are:

    • Associate a movie, gift card, note…​ to a payment. The recipient will not only receive the cash, but also the gift card, allowing the cash transfer to become less transactional. The tool might even foresee the possibility to the recipient to reply with a thank you note.

    • Make a money pot to collect money for a gift for someone, with following sub-features:

      • Setup the money pot (occasion, name, end date of the pot, selection of person for which the gift is foreseen…)

    • Invite persons to participate in the pot (with check that recipient of gift is not invited by accident)

    • Possibility for persons to contribute, i.e. pay a specific amount to the pot and leave a personal message (or even a movie, card, picture…​)

    • Automatically or manually generate reminders and notifications to persons who haven’t contributed yet

    • Be able to take out (a part of) the money of the pot, without having to close the pot

  • More advanced identification of the payment counterparty: apart from selecting a payment recipient via traditional aliases, like phone number, email or name, the tool could also support more advanced identification methods like:

    • Initiate payment via social media accounts or even directly from social media like Facebook, Twitter, LinkedIn…​

    • Work with specific URLs, e.g. Starling bank’s Settle Up system offers you a specific Settle Up page, i.e. "", which can be visited by anyone needing to pay you money. It is also possible for a recipient to send a unique link to the payer, which includes immediately the amount and a message. If the payer is also a Starling bank customer, he will immediately be redirected to the Starling bank payment page, while for other persons, there is the possibility to pay with any UK debit card.

    • Initiate payment based on NFC, Wi-Fi or Bluetooth communication between devices (cfr. the Corona apps which also recognize other persons in the proximity). A nice example is offered by Starling bank, i.e. "Nearby payments" allowing to send payments securely to Starling customers nearby (based on Google Nearby technology)

    • Initiate payment based on (GPS-identified) proximity of another person (obviously only working when both payer and recipient are willing to share their location with the P2P payment solution provider), i.e. the P2P payment solution could show the persons in your proximity and automatically pre-select the person, with which you have done transactions in the past

    • Initiate payment via facial recognition, i.e. by taking a picture of the other person. Taking this picture can be part of the customer journey, as it could be a funny picture related to the expense, on which the system identifies (like Facebook does also with picture tagging) the person(s) involved. This picture is then used as a memento and as a means to derive the involved persons for the expense.

Different P2P payment solutions already exist on the market, which provide different features, such as:

  • PayPal

  • Venmo

  • Cash App

  • Zelle

  • Google Pay

  • Payconiq by Bancontact

  • TriCount

  • Splitwise

  • Settle Up

  • Splittr

  • Splid

  • …​

Each of them has its own positioning, i.e. a local vs. international positioning, type of payment methods which are supported, value-added services, integration with banks, free to be used or charged…​ The market is however still in evolution, meaning there is a scattered competitive landscape with lots of competition and each tool trying to find its differentiation. None of the tools encompasses however all above described value-added services, which means there is still room for evolution.
Furthermore most of those P2P payment solutions still face some issues like:

  • Transfer times being too high

  • Security concerns, i.e. typically caused by making the journey too frictionless resulting in fraud or accidently sending money to the wrong user

  • The lack of a common standard, i.e. currently payer and recipient (or all members of an expense group) need to use the same tool, which can result in multiple P2P payment solutions to be installed on your smartphone

  • The administrative effort of managing all expenses, even though already very well optimized, is still a burden and negatively impacts the positive feeling of a consumption/event. As such the tools need to look further to make the administrational effort more positive, through gamification and other tricks.

  • Many applications keep the money stored in the app until you manually release the money into your personal banking account.

  • Getting refunded in case of error, especially if not directly debiting/crediting bank accounts, can be very difficult

  • Tools still looking for a sustainable business model, i.e. although there is definitely interest by consumers in these kind of solutions, most consumers do not want to pay for it, making it difficult to make those services profitable as a stand-alone service

Today most of those solutions are furthermore still stand-alone applications, which require to setup an integration with your banking products. As such it would be easier if all those functionalities would be part of the ecosystem offered by your banking app.
This requires however open standards so that P2P payments can be executed from any banking app, which are unfortunately not available yet today.
In the end a banking app should facilitate every step of a check-out process of any transaction, both informal (like described above) and formal, such as handling deals (like coupons), loyalty cards, invoicing, subscription management…​ With banking apps becoming more and more powerful, it is likely they will indeed support all those features in the not so distant future.


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