Peer to Peer payments

Europeans coming to visit or study in United States are usually surprised by dozens of differences between both places; the type of food, the transportation system, etc. However, nowadays Europeans need to add another difference to their list, peer to peer mobile payments which are only available in US.

Peer to peer mobile payments allow users to send and receive money with their friends by simply using their smartphones and without knowing other’s people account. Currently there are several applications available such as Venmo, Square Cash, Google Wallet, PayPal, Dwolla or Clinkle. All of these applications solve the same “job to be done” which is to transfer money in a convenient and easy way. However, each one of them has several features that make them different from the rest.

Analysis of differences between applications

Venmo brings together mobile payment and social network. It allows transferring money between Facebook friends registered on the platform. Moreover, Venmo also allows users to comment on the payments done by their friends, which helps to make the payment process fun and engaging. For those users that don’t want to share their payments it is possible to change the privacy setting to avoid sharing payments details with their contacts.


Square cash is the easiest application from the user perspective since it does not require that the person receiving the money is registered on the platform. The recipient receives an email where he needs to introduce his debit card to finalize the transaction. Contrary to other applications, Square Cash is only available for debit cards; it does not accept either credit cards or bank accounts.


Google Wallet apart from allowing users to transfer money between accounts, Google Wallet let users to attach coupons, gift cards and loyalty cards to their accounts. Moreover, users can also make payments on stores by either tapping their android phones or swiping a Google card.


PayPal is the most established player and a lot of people have already an account. It allows transferring money among national and international PayPal users. Another differentiation factor (except for Google Wallet) is that allows larger amounts of monthly transactions than its competitors (up to 10,000$/transaction, whereas other apps allows only ~3000$/transaction or per week).


Dwolla differs from the other application in that is the only application that verifies the user ID and makes him comply with customers regulations before he can start using the platform. Even though this additional security could be considered as a positive feature; the users perceive it on the opposite way because it requires completing an exhaustive registration and waiting several days for the verification process to be completed.


Clinkle has recently launched it service (September ’14) and it is based on “treats”. The idea behind the platform is that after seven different transactions users will receive a “free treat” (e.g. coffee) that they will be able to share with their friends. It does not have any other main difference in comparison with the other applications.


Market Design – Safety and privacy

Now that we understand the main differences among platforms, the first concern for users in order not use this application is the potential lack of security and privacy on these applications. Fortunately, there is nothing to be worried about, because all the companies have created agreements with the main credit card companies (MasterCard, Visa and American Express) to ensure protection for all the digital transactions, and also to support users with teams against fraud and risks.


The other main concern that could avoid users from adopting this peer to peer technology is the cost of using the service. Different companies have monetized their services on different ways, either by charging a flat fee per transaction, or by charging variable fees when using credit or debit cards. Additionally, another method used by these companies to monetize their services is to invest the money transferred from the bank account to the peer to peer account as any typical bank would do.

The only platform that is currently not monetizing its users is Square Cash that is not charging any fee. All the transaction costs for users for the different platforms are summarized in the following table:


Peer to peer payments are here to stay and is very unlikely that they will disappear any time soon. “Venmo, alone handled $314 million in mobile payments in the first quarter of this year” according to Bloomberg. Moreover, the total global market according to BI Intelligence could “worth well over $1 trillion” by 2018.


Network Effect and Winner take all

By this time I am quite positive that most of the readers are already convinced of the attractiveness of peer to peer payments. However, they might be wondering which application to download from all the existing.

Taking into consideration that there are not big differences between platforms, what really makes the difference is the number of users on each of them (network effect). The platform that will manage to grow faster will take control over the market, because the more users available in the platform the more powerful it will become (winner-take-all). Currently Venmo is winning this race and is fairly common to hear among Millennial users to use Venmo as a verb and ask their friends to “Venmo me”, which reminds to what happened in the past with Facebook or Google (“Facebook me” or “Google it”). However, it is important to keep an eye on the rest of applications, especially on Square Cash that is currently trying to increase its Network effect by not charging its users and by giving 1$ away for new users to start using its services.

Who will be the winner of this race? Would it be Venmo, Square Cash or any of their competitors? The only thing that I can say is that I hope that these companies expand their services quickly to Europe because if there is one thing that I will miss from United States when I will be go back home, it will be peer to peer payments.



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 Mobile technology is driving towards an all-encompassing device that will consolidate your communicator, payment system, house key, car key and identification.  We aren’t there yet, but there is a lot of the effort focused on enabling payments from a smartphone; worldwide mobile payments is a $172B business and is expected to grow to $617B by 2016.[1]

There are dozens of companies already chasing after this market and every few months, a new entity seems to jump in – each with its own business model, proprietary technology and merchants.  What are the key requirements of a successful mobile payment platform? At the risk of over-simplifying, the four critical ingredients are:

  1. Security to protect access and transaction payments – often executed with a password, PIN number, photo or distance limit.
  2. Financial institution support – access to finances, whether it be a bank account, credit card or something else.
  3. Communication technology between the customers’ mobile device and the merchants’ transaction device – could be physical, radio or cloud-based.
  4. Widespread merchant acceptance – customers need to be able to use their mobile payment platform at a sufficient number of stores and services.

 There is lots of sprinting to grab first mover status because this is an industry with network effects that is destined to tip towards one platform, at least in the United States.[2]  The real challenge of winning the platform war is to execute especially well on points three and four: Communication Technology and Merchants.  (Note: that is not to say that the first two points are less important, but rather they are table-stakes to even be at the Mobile Payments table).  Surveying the leading platforms, it appears that there are two major customer-focused paradigms that mobile payment entrants consider:

  1. Hardware play – require customers to buy the device with the special hardware that enables payments.
  2. Software play – require customers to download the app that enables payments.

The hardware paradigm typically refers to the NFC chip (near field communication) inside of a smartphone as the authentication and security mechanism.  The benefit of NFC is that it is quick to process a sale and works only within a few inches of the sensor, so it is safer.  This is the system that has been adopted by Google Wallet[3] (via Android phones) and Isis[4] (the recently announced joint venture between AT&T, T-Mobile and Verizon).  The main downside for consumers is that the most popular handset does not include an NFC chip; the iPhone is 33.4% of all smartphones compared to Samsung’s Galaxy S3 representing significantly less than 25.6% of the market.[5]

The software paradigm traditionally just requires the customer to open an app and display a barcode of sorts for the merchant to scan or capture.  The benefit of this system is that it can work on any smartphone as long as the customer downloads the app.  This is the payment system that has been adopted by Square, Paypal, LevelUp, and perhaps one day: Apple’s Passbook.

With both paradigms, there is also a merchant-side challenge: it is expensive to install NFC terminals and barcode scanners – even if it is just an iPad – into every checkout counter of every McDonalds (14,000 US restaurants), Gap (2,550 stores) and Walmart (4,300 US locations).

 It is premature to predict which paradigm will win out – much less which company’s platform – but if I had to guess, it would be the software paradigm.  The reason: it is challenging enough to convince merchants to adopt this new payment system (even if the terminals were given away for free), but it may be even more difficult to sell customers an NFC-enabled smartphone.

In this highly competitive battle for market share, there have been many interesting strategies to onboard customers and merchants alike:

  • LevelUp – attracts merchants with their 0% payment processing (as opposed to 3-4% for standard credit cards)[6].  They also have built both NFC and QR-code scanners into their merchant hardware.[7]  LevelUp claims it has 3,600 merchants as of September 2012.
  • Square – got deeply intimate with Starbucks by taking in $25m in strategic financing and adding Starbucks CEO Howard Schultz to its board of directors.[8]  No surprise, before Christmas 2012, Square will be accepted in all 7,000 US Starbucks locations.[9]  As of August 2012, Square boasted 2M merchants.[10]
  • PayPal – recently invested in a national TV campaign – starring the endearingly-paranoid Jeff Goldblum – to raise awareness of its availability  (watch the commercial here).  This past May, the company announced 15 new merchants including Toys R Us, Abercrombie & Fitch, Barnes & Noble and Home Depot.[11] PayPal claims it reaches 40m point-of-sale systems as a result of a partnership with Ingenico payment terminals.
  •  Apple Passbook – just launched as part of iOS6 and the iPhone 5.  Passbook enables barcode scanning for loyalty cards and airplane tickets, but no mobile payments yet.  If that day comes, the tens of millions of iPhone owners will be an influential buying force.

The race to be the ubiquitous mobile payment platform will explode in the coming months and years.  We will likely see bitter rivalries, confused customers, frustrated merchants, and tumultuous failures before a winner is finally crowned.

[1] “Gartner Says Worldwide Mobile Payment Transaction Value to Surpass $171.5 Billion.”  Gartner Research.  May 29, 2012.

[2] The two sides of the platform are consumers and merchants.  While there are somewhat low multi-homing costs for consumers (at the app level), the costs for merchants are considerably higher: multiple hardware apparatuses, accounts receivable to manage, etc.  As such, the market will tip because merchants do not want to simultaneously support multiple technologies.

[3] Google Wallet FAQ.  October 24, 2012.

[4] “Isis Announces Its Pilot Programs Are Now Up and Running.”  Mobile Payments Today.  October 22, 2012.

[5] “One in Three U.S. Smartphone Subscribers Use Apple’s iPhone.”  Apple Insider.  September 27, 2012.

[6] “LevelUp for Businesses.”  Website.  October 26, 2012.

[7] Empson, Rip.  “On a Mission to Be Mobile Payment Agnostic, LevelUp to Roll Out NFC-Capable Terminals.”  TechCrunch.  September 6, 2012.

[8] Ha, Peter.  “Square Partners with Starbucks, Raises $25M for Series D.”  TechCrunch.  August 7, 2012.

[9] Perez, Sarah.  “Starbucks’ Square Rollout Gets a Launch Date.” TechCrunch.  October 5, 2012.

[10] Kim, Ryan.  “Why Starbucks is Betting on Square.”  Gigaom.

[11] Perez, Sarah.  “PayPal Rolls Out to 15 More National Retailers.”  TechCrunch.  May 25, 2012.


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