Visa creating a person-to-person payment system

Square Card Reader

The Square card reader offers personal credit card processing that will compete with Visa's new P2P system. Image: Flickr / cdharrison / CC-BY-SA

For decades, Visa has provided card processing services for businesses as well as credit and debit cards to customers. As of Wednesday, the card company has announced that it will be premiering person-to-person payments. This new service will compete with electronic payment services such as PayPal and Square.

Visa’s new P2P system

The new Visa person-to-person payment system is new only in the U.S. The card processor has offered a system for individuals to transfer payments to one another internationally for years. Now, fronted by services CashEdge and Fiserv, Visa will allow individuals to get started payments to each other’s credit, debit, personal loans, or bank accounts using e-mail addresses or phone numbers. Visa has not yet announced their fee structure of the P2P payment system, though it is likely to be in the range of one to five percent of the transaction amount. The Visa P2P system will also require those using the system to bank with specific institutions.

Visa P2P vs the competition

Though Visa is touting their new P2P system as “revolutionary,” there are several companies offering similar services. PayPal, owned by Ebay, is one of the most popular online payment systems. An average PayPal transaction costs between 5 cents and 3 percent of the transaction amount, depending on the type of payment. PayPal, however, can be clunky to use off-line. Square is a relatively new payment system that processes card payments through a smart phone, and charges between 2 and 3 percent of the transaction amount. Square is proving especially popular for the person-to-person payments market, since it can process just about any type of card, Visa or otherwise.

The increasing cost of payments

In announcing their new P2P payment system, Visa indicated the system would help “eliminate the inefficiencies of cash and checks.” The reality is, though, that cash and checks are the only way that the full amount transferred from person to person stays with the intended recipient. Much like payday loans, using cards to transfer value requires that a fee be paid. These small fees and payments are usually just a few percent — but are also the target of heavy debate. The amount a card issuer can charge in transaction fees is being limited by legislation, and some card issuers are threatening to limit debit card transactions to $50 or less in order to maximize available profit from these transactions.


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