Peer-to-Peer Payments
Description
Jennifer Windh:
'P2P payments are primarily defined by their counterparties. Counterparties are the individuals or entities sending and receiving payment. The counterparties to P2P payments are consumers and small businesses. Within the payments industry there is some disagreement about the types of payments that are called P2P. For the purposes of this paper, we define a P2P payment as a Person 1: Sender Access channel Funds load instrument Clearing & settlement network Funds receipt instrument Person 2: Recipient •Consumer •Face‐to‐face •Mail •Agent/ branch •Kiosk / ATM •Online •Mobile •Cash •Bank account •Check •Debit card •Account and routing numbers •Credit card •Prepaid account •Check •ACH •Wire •EFT network •Book transfer •Consumer •Small business •Cash •Bank account •Check •Debit card •Account and routing numbers •Credit card •Prepaid account3 payment made by one consumer to another consumer or to a small business. The sender of the payment is always a consumer. The recipient may be either a consumer or a small business. This definition is appropriate because one of the dominant uses of newer electronic P2P payment products is to make bill payments to small businesses. When the recipient business is a sole proprietorship, payments are made to the individual owner (e.g., a piano teacher, maintenance person, or nanny), the payment shares many characteristics with a consumer-to-consumer transaction. For this reason, researchers have sometimes found it can be quite difficult to distinguish between consumer-to-consumer and consumer-to-small business payments. business’s payments to consumers and other businesses are not P2P payments under this definition, and are qualitatively different from P2P payments. A business-to-consumer payment is typically an income payment of a recurring nature, and is excluded from this definition." (http://www.frbatlanta.org/documents/rprf/rprf_pubs/110815_wp.pdf)
Paper
- Article: Peer-to-peer payments: Surveying a rapidly changing landscape. By Jennifer Windh. Federal Reserve Bank of Atlanta, August 15, 2011
URL = http://www.frbatlanta.org/documents/rprf/rprf_pubs/110815_wp.pdf
Introduction
Jennifer Windh:
'Peer-to-peer (P2P) payment products are some of the most innovative developments from the payments industry in the past decade. Much ink has been spilled covering the cutting-edge opportunities for banks and other payments providers in P2P payments. Consumers have never had so many payment choices. Alongside a host of recent entrants like PayPal and CashEdge, longstanding industry players like Fiserv, Visa, and MasterCard all offer P2P products. Additionally, three major banks just announced a collaborative P2P initiative called ClearXchange.
Despite this range of innovative offerings, however, the industry lacks a standard understanding of how the various P2P payments in the market work. Further, consumers and businesses frequently lack an understanding of relevant risks associated with P2P payments and that lack of understanding may also be a source of the inertia that keeps consumers relying on cash and checks for most P2P payments, despite a growing number of alternatives. This paper offers a framework to organize a discussion of P2P payments and evaluate the associated risks. This paper describes P2P transactions throughout the transaction life cycle, following the payment from sender to recipient and through all intermediate steps. The framework categorizes transactions by counterparties, access channel, funds load and receipt instruments, and settlement network. Any P2P payment can be mapped across this life cycle in categories that are mutually exclusive and comprehensively exhaustive. The output of this mapping details the nature of the counterparties and intermediaries involved in the payment, which dictate the individual transaction’s risk profile."