Right now, we make an average of 54 person-to-person payments every year. If you consider the number of times you go to buy a cup of coffee in the morning or make a trip to the grocery store, 54 payments doesn't seem like much. Why do we make so few person-to-person payments? If you think about how inconvenient a person-to-person payment is compared to just walking into a store and swiping your card, it quickly becomes evident why there's such a huge gap.
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If you wanted to make a person-to-person payment, it would probably be in the form of cash or personal check. You might even be bothered to go into your banking application to initiate a transfer directly to the recipient's account. Even though subsequent transactions are more convenient, it's quite a clunky process to get everything set up for the first time. There's a valuable opportunity here for someone to take advantage—the process of sending a person-to-person payment can be made much easier.
Who are the Major Players in Person-to-Person Payments?
The banks have been providing facilities for person-to-person transactions for a long time. Of course, they'd like to think that they've already made the process drastically easier. You can now log into a banking application on your phone to initiate a transfer, no matter where you are. However, you still need to know how to get the recipient's full bank account number.
New players are also coming into the space and they are almost disrupting the banks. For example, if you want to buy something on eBay (essentially a person-to-person transfer), you can simply complete the transaction using PayPal. Apple Pay is another contender that people are looking at closely right now. They are planning to offer person-to-person payments, but their model is to provide a simpler and more seamless service than banks. If they can earn the customer's trust (there's no reason why they can't), they are poised to steadily win the bank's customers over.
Is it Possible to Find Trust in a Trustless Environment?
Even though someone might be new to person-to-person payment technology, they will already be familiar with players like PayPal or Apple. They would be very likely to trust those brand names due to their reputation. In fact, I remember reading a survey asking the question, "Who do you trust more?" When pitting banks against a company like Apple, there was no contest. The banks would not have been happy with some of the responses to that survey. People are simply more trusting of the familiar brands that they use every day.
One of the last issues with person-to-person payments that hasn't been solved is trust within the transaction itself. There are usually goods being exchanged for payment in these situations. Banks have traditionally fulfilled the role of middleman, making sure that both ends of the interaction are completed amicably. However, what if the account is overdrawn? The bank is there to make sure there's a way to sort everything out.
As we move forward, there are different potential solutions other than getting the banks involved to ensure trust on both sides. Cryptocurrency (like Bitcoin) uses technology called a blockchain, which relies on strong encryption along with a distributed, public history of transactions. These kinds of ingenious solutions provide trust in what's essentially a trustless environment.