KEY POINTS: 

  • We estimate that US annual peer-to-peer (P2P) payments — informal payments made from one person to another — reached over $540 billion in 2014 and will grow to $566 billion by 2019. These payments can be made by cash, check, digital money transfer, or other means, and include paying an allowance to a child or paying back someone for dinner at a restaurant. 
  • Mobile P2P payments are having a huge impact on this informal economy and diminishing the need for cash and checks. We forecast that mobile P2P payments will grow from $5.6 billion to $174 billion during the same period. By 2019, we expect 30% of P2P volume will be paid via mobile, up from 1% last year.
  • Convenience will drive people to adopt mobile P2P payments. People nearly always have their phones on them, whereas they may not have exact change or a check on hand in order to make a payment. That makes mobile devices a better fit for these sorts of transactions. 
  • Mobile P2P payment apps primarily use ACH or card network payment rails in order to complete transactions, but there are alternatives. ACH transactions are slower than card network-based transactions but carry a lower fee. Some apps also allow transfer of funds through mobile money networks, digital currency networks, and other alternative payment networks.
  • There are four types of businesses making major moves in mobile P2P payments. Each of these types of companies has its own objectives and strengths in offering mobile P2P payment services. 
    • Social messaging apps are in a strong position when it comes to mobile P2P payments. These apps have massive user bases composed of closely connected friends, making them especially effective at jump-starting a network effect, which is critical to mobile P2P taking off. 
    • Banks are offering mobile P2P payments services to stay relevant to consumers. They have an advantage in terms of perceived security and existing customers. 
    • Card networks provide backend support for P2P payments, allowing them to earn processing and interchange fees off of transactions. These networks' systems are faster than those funded with bank accounts and have built-in fraud protection. P2P payments funded with cards could also conceivably be made internationally. 
    • PayPal and Square are leveraging their existing experience in payments to develop their P2P apps, which will ultimately allow these companies to onboard consumers into their greater [...]