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Financial technology (fintech) companies are threatening banks on many fronts according to American Banker. While this is true, it is in peer-to-peer (P-to-P) payments that banks may be most at risk.

Banks may not have much time to reverse this trend. The advantages they have are their legacy as well as the history and trust they have built with customers. Banks need to figure out a way to link that trust with the ease and convenience that their competitors are offering. So, expect the major bank vendors to make accessibility in their P-to-P payments a priority in the coming year.

Meanwhile the payments system backed by several of the largest banks in the United States, ClearXchange, is hoping to build on the momentum it achieved last year by making use of the system more convenient. “We want to leverage that trust and security that banks already have, and help them move faster in this rapidly evolving marketplace,” explained Melissa Lowry, head of product and marketing at ClearXchange.

In 2015, the number of ClearXchange registered users rose threefold to 25 million. These users came from 7,500 financial institutions. Anyone with a bank account can sign up for and use the service, but those who are customers of registered member banks can transfer money in real time. Ultimately, Lowry said, the goal is to enable real-time payments for all money movement through ClearXChange by the end of this year.

Michael Moeser, director of payments at Javelin Strategy & Research, pointed out that money movement was a key battleground in financial services in 2015, one where traditional institutions found themselves losing ground. In his words, “Financial Institutions were slow in offering P-to-P capabilities and therefore found themselves at a disadvantage in 2015.”

Moeser further explained this is because nontraditional entrants, besides offering real-time money movement and minimal fees, also incorporate social aspects into payments. Services like Facebook Messenger payments, Snapchat’s “Snapcash” feature and Venmo — which utilizes a news feed and other aspects of social networks — have made headway by seamlessly integrating digital payments into the social structure.

“These are platforms where you might be chatting with someone and then say ‘Let me send you that money I owe for dinner last night,’ or you see your friend is going to a game and you send them money and say ‘Pick me up a Knicks hat,’ ” Moeser said. “It’s convenient to be able to send money while you’re already in that application.”

Competing with the social aspect of some of the fintech payments providers will be difficult. In fact, typical Venmo users check in to the app four to five times a week to look at the social feed, even if they don’t transfer money according to Adrianne Wright, a spokeswoman for the company.

As Wright explained, “It’s a different type of social network. Our users like the simplicity and organic feel of the service.” She further clarified that Venmo doesn’t see itself as a competitor to banks, but rather “works with them” to help its users send money.

Banks should make a note of the fact that innovations in P-to-P payments are likely to continue given the substantial growth in consumer-focused fintech. According to Forbes, the boom in consumer-facing fintech startups is a global phenomenon. From Silicon Valley and New York, to London and across Asia and Australia’s financial hubs of Singapore, Hong Kong and Sydney, startups offering services such as tech-enabled payments are sprouting up and competing with traditional retail banking and financial services firms.

The number of fintech startups is difficult to pinpoint, but data sources and industry watchers estimate that Asia has approximately 2,500 fintech startups while the U.K. and the U.S. have a combined total of 4,000. This immense growth can be attributed to a large extent to investment in fintech startups. CB Insights reports that more than $24 billion has been invested in fintech startups worldwide since the beginning of 2010.


Ryan Lahti is the founder and managing principal of OrgLeader, LLC. Stay up to date on Ryan’s STEM-based organization tweets here: @ryanlahti

(Photo: Facebook Messenger App, Flickr)