Thursday, May 06, 2010

The relevance, importance and future of P2P payments

Pretty much any payment if you analyse it in the end is a person to person (P2P) payment. We have grown used to the majority of these payments happening in cash. "Oh, by the way, here is the $10 that I owe you..." This is way that we have paid each other for centuries and we will have difficulty changing. Today, a small percentage of these payments do happen by means of other mechanisms (cheque payments, on-line electronic transfers, etc.). But the majority still is executed by means of cash transactions.

Of course, this is because cash has a number of characteristics that ensures that this work so well:
  • Cash is immediate (As soon as I got paid the money, I can use it again).
  • Cash is irreversable (If I have the money, nobody can reverse the transaction without my consent and or knowledge)
  • Cash transactions are cheap (to the consumer, but not to the eco-system)
  • Cash does not require a name (KYC) attached to it.
In a recent study performed by eCom Advisers (Read here), almost half of the respondents in the survey indicated that they would want to have an electronic mechanism to replace cash and checks as a person to person payment mechanism. Why is this the case?
  • Cash is pretty inconvenient in many ways
  • It is impossible to do P2P payments in realtime and over a distance
  • Electronic payments can be more secure, more predictable and actually at a lower cost (for the eco-system) than cash.
With the advances in mobile payments, the deployment of suitable infrastructure and (most important) education, it is highly likely that cash will start to be replaced as the P2P payment tool of choice. This may not take too long to happen.


Patrick Le Floch said...

What does KYC mean?

Hannes@Home said...

Know your Customer (KYC) is a requirement in most countries on a bank before registration of a customer for a bank account or a mobile wallet.

Hasan said...

Great points. I was reading some comments regarding the launch of M-PAISA in Afghanistan (see here )which reminded me that a major hidden cost of cash to the ecosystem is corruption - particularly in the developing world. When the government used the service to pay the salary of the police force, the police officers were surprised that their salary payments where a third higher than usual because the police commander was not taking his usual cut of the salaries! Perhaps a good example that the proof of the pudding is in the eating.