Payments Integration: First-Mover Advantage or Last Laugh?

Kenny Moyer, VP & Director of Operations, Memory Bank, Republic Bank

The race to provide the ultimate person-to-person (P2P) payment service is well on its way. This race is critical to the banking industry as the outcome could have major impacts on how banks do business and earn fees. There are two key questions a bank must ask as it explores its options for the future: 1) Is it best to partner with a payments provider now or 2) Should we sit and letthe payments competition play out?

First, to understand both of these questions, it is important to note that there is significant first-mover advantage in the payments space. Ask any individual why they chose a preferred P2P service for instance, and the answer will predictably be: “I know someone else using it”. In other words, if you set up a Venmo account because your friend you are splitting a dinner bill with is on it, it is likely now Venmo in this example will become your preferred payments choice going forward.

Venmo is just one of many payment services vying for the largest share of an individual’s P2P activity (and soon person-to-business, or P2B, activity). Venmo, like PayPal and Square Cash, are non-bank services, and operate independently of banks. These services can both pull money directly from your account to facilitate a transfer and hold money as a balance for future transfers. Registering for such services usually requires a mobile number or email address, and then a checking account number or debit card number in order to link to your preferred bank. Once set up, sending money to another person is as easy as sending a text or email. If you do hold a balance, it just takes a business day or two (or sooner with a fee) to have deposited to your bank account.

The race to provide the ultimate person-to-person (P2P) payment service is well on its way

Zelle, on the other hand, is a relatively new P2P service provider built and owned by a consortium of banks. The Zelle platform integrates directly into a bank’s mobile banking application and allows consumers to send money transfers real-time directly to another consumer’s checking account at other banks also on the Zelle network. Most banks using Zelle offer the real-time service free to the consumer. No doubt the Zelle platform has many bank managers talking right now, given the level of exposure the service has been getting from widespread advertising.

So, back to the questions: partner now or wait? From a banker’s perspective, these are not easy questions to answer. The first-mover advantage can certainly hold true, as banks that get in early, say with Zelle, have the opportunity to gain quicker adoption from customers. On the opposite side, the payments space is ever evolving and it is difficult to predict which specific payment platform will rise to the top and attract the largest number of users. In theory, a Venmo or a Square Cash for instance, could introduce new features that allow consumers to send money directly to another consumer’s checking account real-time or for free. If this were to happen, it is possible that any investment in a Zelle-type payment integration would be difficult to recoup if consumers wind-up preferring other or multiple channels.

Integrations take time and resources, but can pay off. Whichever direction you choose for your bank, there is one thing for sure, the payments space is just getting started. Will you get in on the first-move, or get the last laugh?