As smartphones change how individuals pay their friends and family, Wescom Credit Union ($2.7B, Pasadena, CA) is developing its own person-to-person network by partnering with PayPal.
“The idea came from a group of folks who wanted to give our members the ability to send funds to others outside of the credit union,” says Eli Martinez, home banking product manager at Wescom. “We wanted to give our members additional options than what they had today so they could transfer funds with a simple click and an easy interface.”
Person-to-person payments are a growing concern for credit unions and other financial institutions that don’t want to lose these transactions to third parties like PayPal. Of the 88% of US consumers who sent money to another person in the preceding 12 months, 31% used either an online bank-based person-to-person payment service or PayPal, according to an October 2013 survey of 2,500 people from Fiserv, which provides technological solutions to financial institutions. Most respondents, a full 56% in fact, still used cash.
That’s small comfort to credit unions because nearly a third of respondents also said they never had enough cash on hand to pay someone. Among 18 to 24 year-olds that figure rose to 39%. So it’s little wonder that 79% of the people surveyed said they would be willing to use a digital person-to-person payment service from their own financial institution.
Establishing The Service
For Wescom, however, establishing its own person-to-person payment network made less sense than piggybacking on PayPal’s. The company, which posted $5.6 billion in revenue in 2012, not only offers users a network of businesses accepting the payments but also complex, layered security. Plus, the credit union wanted a simple intuitive design, one that new users could learn easily.
Members, Martinez says, aren’t going to adopt a new payment technology if it isn’t easier than the status quo. At the same time, he adds, “We want to make sure that we balance security and user experience.”
So early in 2011 the credit union asked the company if it was interested in setting up a peer-to-peer payment network for Wescom’s membership. PayPal provided Wescom with the blueprint, structure, and guidelines for the network, and the credit union did the rest. By August of that year, Wescom had launched SendMoney, its own personal payments network.
“It was pretty much a collaborative effort between both parties to get the interface done and approved,” Martinez says.
How It Works
To use the payment service, member must download the app for iPhone or Android and link their Wescom checking account. Payments are sent through the PayPal network to the recipient’s email address or phone number and are automatically stored in the person’s PayPal account, should one exist. Otherwise, the recipient is notified through text or email that funds are available. To collect them, the recipient must open a PayPal account. Once the account is open, the funds can remain there, be used for online purchases at participating retailers, including Walmart, eBay, and Best Buy, or transferred into a traditional bank or credit union account.
Members may send between $1 and $500 per day to other people, with no limit on the number of transactions. The funds are withdrawn from the member’s Wescom account and are accessible from the recipient’s PayPal account immediately.
The app only allows funds to be sent, not received, and Martinez says that the program’s growth is somewhat limited by the number of online merchants accepting PayPal payments. Yet, Wescom has seen the number of transactions from the app grow over the past three years, from 1,200 in the first year to 6,000 today.
Wescom does not charge any fees from the transactions. For now, Martinez says, the service only appeals to a limited number of people and is intended to add value for those members rather than attract new members or generate revenue. But, he adds, it is an investment in the future because the next generation of members has already adopted the technology.