Phone apps catching on for money transfers

June 18, 2011

Three friends go out for pizza and beer, but when the $45 check arrives and two are short of cash for anything more than a tip, one of them pays the entire bill with his credit card.

Will the lunch quickly be forgotten and the payer stiffed? With today's technology, maybe not.

The other two pull out their iPhones, sign into their Fiserv Inc. ZashPay app, fill out a brief transaction form and text-message their paying friend that $15 is being moved from their checking accounts to his.

Keeping hard feelings out of friendships isn't necessarily one of the goals of electronic person-to-person payments, but it could be a side benefit of this growing segment of the banking industry.

Fiserv, a Brookfield-based financial technology company, is in the thick of the fledgling movement, in which people can move money - to the baby sitter, to the lawn-mowing service, to children for allowance, to relatives as gifts - for transactions that historically have involved checks or cash. All that both parties need to make it happen are checking accounts and an email address or mobile phone number.

"It makes it easier for two people to have a convenient way to be able to pay each other without cash," said Tony Catalfano, president of Fiserv's Electronic Payments division.

As more and more people obtain smartphones, electronic payments among peers - and to small businesses that perhaps now only take checks as payment - are likely to increase, industry analysts say.

"I think growth in these kinds of payments will very much mirror the growth of smartphones," said Bob Meara, senior analyst with the Boston financial technology research and marketing firm Celent.

Big banks jumping in

The concept of electronic person-to-person payments - known in the industry as P2P - is likely to get a boost from a joint venture announced last month by Bank of America, Wells Fargo & Co. and JPMorgan Chase & Co. The venture, called "clearXchange," will allow customers of those banks - three of the four biggest banks in the U.S. - to send money electronically via email addresses or mobile phone numbers through their websites or mobile device apps.

While it appears the venture by the trio of megabanks will compete with ZashPay, PayPal and another leading P2P product known as Popmoney, it shows financial institutions want the service and may hasten its acceptance, analysts say.

"You look at the aggregate customer base of those three financial institutions and that's huge," Meara said.

The use of debit cards has made people more accustomed to transferring money out of their checking accounts, and probably has set the stage for growth of P2P, some say.

"Now that people are used to paying electronically, I think it's a market now that people are ready to use," said David Koning, a financial technology company analyst for Milwaukee's Robert W. Baird & Co.

Fiserv, which sells billing and payment technology to banks and credit unions that in turn offer it to their customers, says its ZashPay person-to-person product has increased 17-fold in a year. At the beginning of 2010, only 43 of its financial institution clients had signed up for ZashPay. As of the first quarter of this year, it had 734 institutional clients.

While Fiserv prefers to offer ZashPay through its financial institution clients' websites, the system also operates independently of banks and credit unions. So if a bank customer who uses ZashPay sends a payment to someone who doesn't, the person can receive the payment into his or her bank account by signing up at ZashPay.com.

Fee per transaction

People who send a payment directly through ZashPay.com are charged a 75-cent fee. If ZashPay is used through a person's bank, the fee could be higher or lower depending on fees set by the bank, Fiserv said.

ZashPay transactions can be carried out via computer or its iPhone app. A ZashPay app for Android phones is due out later this year, Catalfano said.

Jason Kuwayama, an attorney in the banking group of Milwaukee's Godfrey & Kahn law firm, said acceptance of electronic payments probably would be further along by now if not for the financial crisis. The crisis and fallout from it caused many banks to focus on their capital needs rather than bringing new products to market.

"Banks drew away from spending money on emerging technology," he said.

But he predicts P2P payments will evolve to even simpler methods than the text-based transactions banks and others are starting to offer now.

"The future holds a lot of promise," Kuwayama said.

Catalfano sees the technology eventually moving from smallish person-to-person payments to a system in which small and medium-sized businesses could send invoices to customers electronically and be paid electronically as well.

Replacing checkbooks?

If the future holds promise for electronic payments, it probably also holds a reduced role for paper checks - but not extinction.

"Electronic payments aren't going to appeal to everybody," Meara said. "There are some pretty resilient and dedicated check writers out there, and they are not going to go away quietly."

Said Kuwayama: "It see checks going away, but not anytime soon."