- PROJECT HELP
By Roxanne Voidonicolas, Marketing Communications Specialist, Sensibill
“Figuring out who owes what at the end of a nice meal is like entering the seventh circle of hell.”
In The Inefficiency of Splitting the Bill,researcher Uri Gneezy defines the "unscrupulous diner's dilemma" using game theory. He explains that people choose to split a bill evenly rather than figure out “who owes what” because of the mental and social costs involved in requesting an itemized bill.
The dilemma of bill-splitting applies to more than just dining, and can accrue over time as tracking payments owed becomes more of a financial burden. Think shared households and utility bills, splitting the costs of a gift, or co-managing a travel budget. Peer-to-peer (P2P) payments providers are trying to solve this pain point, but how well are they solving for both the social and mental costs?
Best-in-class platforms like PayPal, Venmo (also owned by PayPal), Google Wallet, Square Cash and Dwolla have alleviated most of the social costs associated with IOUs.
Venmo in particular has actually built a social network around their payments system. Besides the basic functionalities of sending people money and requesting a payment, Venmo keeps the stream of payment activity light and playful. Even social media titans, Facebook and Snapchat, have penetrated the market, confirming that providers are viewing the subject of peer-to-peer payments from a largely social standpoint. Consequently, the solution solves for the social costs, while the mental costs identified by Gneezy fall by the wayside.
P2P payment apps fall short on two major counts:
Between manual calculations, 3-day lags in payments and deposits, and jumping from one app to another, these services remain fraught with friction. Ultimately, all people want is the ability to carry out all of their financial activity from one central place. More and more apps to solve one-off pain points is counterintuitive and messy. Simply put, a seamless solution should automate the mental tasks and sync with the customer's broader financial lives.
Although most of the big financial institutions in North America offer P2P payments solutions via platforms like ClearXchange (soon-to-be Zelle) and Popmoney, to name a few, the customer experience pales in comparison to digital competitors whose operations are designed for rapid innovation. The reality is, merely offering P2P transactions is expected, table stakes even. Gaining a stronghold in the projected 200-billion-dollar market means extending the value proposition of payments. How can banks do this?
For starters, they need to decide that this is a war they want to win. Strategically, they need to approach their P2P payments services as part of their mobile product strategy and prioritize driving traffic to their mobile apps. According to the Federal Reserve, 80 percent of mobile banking activity revolves around checking balances and facilitating transactions, so it's a no-brainer that enhancing payments capabilities would be a competitive differentiator for banks. More engagement with mobile banking apps will in turn drive consumers towards other products that are more lucrative than deposit accounts. A study by Fiserv supports this, revealing that mobile banking customers have 2.3 products versus 1.3 products for branch-only customers.
Winning the P2P payments war means that banks need to do what their digital competitors aren't doing:
At the end of the day, banks are the only ones positioned to provide a truly seamless P2P payments experience. Plus, people trust their banks the most to provide their financial services. Just comparing the average transaction amount between ClearXchange users ($350) and Venmo users ($25-$40) confirms that people would rather make valuable payments via their bank than a third-party application.
With one simple upgrade to functionality and a page out of their competitors' books, banks can gain the competitive advantage they need to win back their market share.
Banks – it's time to fight fire with fire.