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Report: Person-to-Person Payments To Escalate Sharply

Widespread adoption of digital payment methods for person-to-person (P2P) transactions, although still some years away, will take place faster than did the adoption of credit cards and ATMs, according to a Meridien Research report.

Consumer spending on the Internet will rise to $300 billion by 2005-a big chunk of it coming from online auctions-according to the report, Person-to-Person Payments: You've Got Money! An estimated one million completed auctions will take place in 2005-up from about 700,000 last year-fueling a demand for P2P payment mechanisms, the report said.

To stay ahead of the curve, banks have entered into a flurry of new P2P ventures:

- Wells Fargo has bought a 35% stake in BillPoint, a P2P company that had itself been acquired in 1998 by eBay, the popular online auction site. The BillPoint service allows buyers in eBay auctions to pay sellers by credit card as well as by check or money order. To use BillPoint, sellers copy HTML code to add the BillPoint icon to the items listed for sale-a two- to five-minute process. By clicking on the icon, a buyer is taken to the BillPoint site to process the transaction. Wells Fargo then deposits the funds into the seller's checking account. BillPoint estimates that it's now processing e-payments for about 20% of eBay's active users, according to Meridien.

- In Germany, where consumers tend to shy away from credit cards, Deutsche Bank is offering a P2P payments "engine" from eCash Technologies, a Seattle-based software company, in conjunction with the co-branded Yahoo MasterCard. Deutsche Bank, which had been piloting eCash for several years, has also taken a minority stake in the company.

- CIBC-through its Orlando, Fla.-based subsidiary, CIBC National Bank-is acting as the clearing agent for Yahoo's PayDirect service.

- NYCE is testing a "PINless" service enabling individuals to send or receive payments from ATMs, PCs, VRUs, and PDAs.

- Bank One is marketing its P2P service, eMoneyMail, to retail customers directly and through its WingspanBank online subsidiary.

- Fleet Bank is partnering with TradeSafe, an escrow service geared to high-value payments for auctions and other P2P arrangements. In addition to the escrow service, TradeSafe offers Express Payment, allowing the seller to receive immediate payment and the buyer to receive a guarantee on the purchase.

Combining two of the most popular innovations of the 20th-century-credit cards and e-mail-P2P services enable individuals to transfer funds electronically to each other at little or no cost. Although simple in concept, the services stand to step up the pace of e-commerce by enabling anyone to set themselves up as an online sender or recipient of funds.

An individual wishing to send a payment completes a short online registration form that collects credit card or checking account information. The form is transmitted to the service provider who, acting on behalf of the recipient, obtains an authorization through the credit card or EFT network for the amount of the payment. The recipient is then notified via e-mail that funds are available and is instructed to click on a hyperlink to complete the transaction. The funds are then credited to the recipient's credit card or checking account.

Services intended primarily for auction use, such as BillPoint, require the recipient to open an account (linked to the recipient's checking or credit card account) into which funds are to be credited. Services intended for general use-including but not limited to auctions-require the sender to open an account (linked to the sender's checking or credit card account) from which funds are to be debited.

Some services are more restrictive than others, the Meridien report noted. Yahoo's PayDirect, for example, requires both senders and recipients to open an account. Bank One's eMoneyMail, on the other hand, processes payments made to or from any credit card or checking account from any financial institution.

Ease of use, security, speed of settlement and portability will determine how quickly consumers take to P2P schemes, Meridien reported.

The registration process must be simple; if it exceeds three minutes, the individual is apt to quit and not return. As for security, several of the e-mail-based systems require recipients to respond to one or more identifying questions (e.g., mother's maiden name) before releasing funds. Speed of settlement is determined largely by the time it takes for the recipient to open the "You've got money" e-mail notification. Portability-the ability to provide a P2P service through handheld and mobile devices-will be possibly the most important breakthrough, the report said.

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