Cash is King of P2P Payments

November 15, 2010

Despite proclamations to the contrary, most Americans still prefer cash. And it's not much different elsewhere.

According to the U.S. Treasury Department, paper money in circulation grew 700% from 1975 until 2005.

In 2006, American consumers spent four times as much money with cash as they did with credit cards, according to the Federal Reserve Bank of Boston.

Treasury's Bureau of Engraving and Printing churned out nearly 38 million banknotes a day during 2007, and the U.S. Mint produced an average 42 million coins daily.

Meanwhile, a poll of consumers in the U.S., the United Kingdom and Australia taken in August by the research and consulting firm Aite, reveals that 50% of person-to-person (P2P) payments are cash. That's more than the combined total of all available electronic methods. Checks account for 17% of P2P payments in the subject countries, Aite reports.

Ron Shevlin, a senior analyst at Aite and co-author of a new P2P payments report, says P2P micro-payments are poised for growth, especially with greater smart-phone penetration. "Aite Group believes that as smart phone adoption continues to increase - it's projected to reach 50% in the U.S. by the end of 2011 - mobile P2P payment activity will increase at the expense of cash and checks," he said.

However, a survey conducted this summer by Javelin Research & Strategy revealed that only 8% of Americans with mobile telephones expected to use those phones for payments within the next year. Among those who use mobile money options today, most are for domestic transfers for amounts between $10 and $50, Javelin reports.

Mobile Money Makes Sense for Unbanked

In the U.S. today, there are two basic models for electronic P2P payments: the PayPal model and online banking applications. In both cases, checking accounts or credit/debit card accounts are required to complete transactions. So, these are not options for the unbanked.

On the other hand, mobile telephones have become almost ubiquitous, in developed and under-developed countries alike. At least one-half of the global population has a mobile telephone and about 90% have access to mobiles, according to various sources.

Juniper Research, a U.K.-based research and consulting firm, expects the value of digital and physical goods purchased by consumers using mobile phones to double in the next two years: growing from a $100 billion worldwide market this year to $200 billion in transactions in 2012.

Howard Wilcox, author of a report on the study - Mobile Payments for Digital and Physical Goods - sees the proliferation of faster mobile networks, friendlier and smarter devices, and initiatives by non-banks (think PayPal, Google, Amazon) kick-starting micro-payments. But again, these are solutions requiring banking relationships.

Another key finding of the Juniper study: the frequency with which folks use their mobiles to make payments will be highest in developed countries of North America and Western Europe.

If the scenario Juniper paints proves prescient, imagine the opportunities for reaching the unbanked and underbanked in the remotest areas of the U.S. and the world.

For those of us who reside in major population centers, especially in the United States, it can seem a stretch, but there are plenty of places in the U.S. today where it's easier to spot a mobile tower than it is to find any sign of a bank. For folks living in these remote areas, a WalMart Money Center may be the closest they come to a bank for a 30+ mile radius.

Earlier this month WalMart announced a new smart phone application for its Sam's Club warehouse chain. Cindy Davis, Sam'sClub EVP for marketing, says the company's research indicates that better than 40% of its members have smart phones. The app can be used to find stores, product review and special "eValues." A mobile payment app can't be too far off.

17.2% of Americans reported carrying prepaid debit cards in 2009

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