Digital peer-to-peer payments are the new norm

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Digital peer-to-peer (P2P) payments are becoming a new "social norm," according to data from a recent Bank of America study, "Trends in Consumer Mobility."

Across generations, consumers are using their mobile devices as a platform to pay back and split bills with friends and family members. This is consistent with expectations for P2P — BI Intelligence expects mobile P2P to rise to $336 billion in 2021. 

Convenience is the main reason users adopt digital P2P. Among the customers surveyed, 68% took to the technology because of convenience, making it the most popular response. 

• P2P payments save users time. Fifty-one percent of those surveyed found that paying someone back via check is the most frustrating payment method. Digital offerings are much faster, which could remove some of those pain points, especially since they can be sent and processed in just one day. That makes them especially popular in social situations, like sharing a check or splitting a purchase, which often require immediate payments.
• That's likely to be particularly salient with younger consumers. Sixty-two percent of users surveyed are millennials, indicating that this population is at the forefront of the digital generation. That's likely connected with the digital-savvy, mobile-oriented nature of that generation, which tends to use their phones for more functions. And this generation most benefits from the network effect — when users bring their peers into the ecosystem organically — thanks to the situations in which they're willing to use these devices. 

But P2P usage is poised to continue to rise, as new use cases emerge. As people build habits around mobile P2P in social situations, they may want to take advantage of that convenience for higher-value use cases. Right now, P2P is often used for casual, low-value transactions. But 26% of consumers feel that no amount of money is too high for a P2P transaction, indicating that the services could gain traction among more "serious" offerings, like rent or bill payments, soon, ultimately lifting overall volume and bringing new demographics into the ecosystem. 

Peer-to-peer payments, defined as informal payments made from one person to another, have long been a prominent feature of the payments industry. That’s because individuals transfer funds to each other on a regular basis, whether it's to make a recurring payment, reimburse a friend, or split a dinner bill.  

Over the next few years, though overall P2P spend will remain constant, a shift to mobile payments across the board and increased spending power from the digital-savvy younger generation will cause the mobile P2P industry to skyrocket. 

That poses a problem for firms providing these services, though. Historically, most of these players have taken on mobile P2P at a loss because it’s a low-friction way to onboard users and won’t catch on unless it’s free, or largely free, to consumers. But as it becomes more popular and starts to eat into these firms’ traditional streams of revenue, finding ways to monetize is increasingly important. 

Jaime Toplin, research analyst for BI Intelligence, Business Insider's premium research service, has compiled a detailed report on mobile P2P payments that:

• Forecasts the growth of the P2P market, and what portion of that will come from mobile channels, through 2021.
• Explains the factors driving that growth and details why it will come from increased usage, not increased spend per user.
• Evaluates why mobile P2P isn’t profitable for companies, and details several cases of attempts to monetize.
• Assesses which of these strategies could be most successful, and what companies need to leverage to succeed in the space.
• Provides context from other markets to explain shifting trends.

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