New ways to send money online cut costs and hassles

For better or worse, new technology makes sticking your friend with the restaurant check or shirking your share of the monthly bills much harder these days.

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As using person-to-person (P2P) online payment systems mean moving money to friends and family is faster, less painful and more secure, claiming you’re “fresh out of cash” or can’t find that elusive checkbook are increasingly lame reasons not to pay up.

Paypal, Venmo, Square Cash and Dwolla all make payments easier and cheaper than ever.

These and similar services are changing the financial services landscape and challenging traditional players like banks and credit unions to offer similar capabilities to customers, or risk losing business.

“Traditional banks and credit unions are being caught off guard and are having to play catch up,” says James Robert Lay, chief executive of CU Grow, a Pasadena, Texas-based digital marketing consulting firm for banks and credit unions. Lay says that while these application providers and startups disrupt the market for payment and money transfer services, they’re simply responding to demand for easier and cheaper methods. Financial institutions need to change the way they operate quickly, he says, because “consumers can essentially cut out banks and credit unions now to make payments.”

Banks are listening, especially the larger ones. JPMorgan Chase has aggressively marketed its QuickPay mobile banking feature in a slew of TV commercials. CapitalOne offers $50 to new account holders who use its Person2Person payment system, and many other banks are testing P2P services.

Their customers’ desire for better P2P payment options means banks can capitalize on established depositor relationships to capture that business as well, says Marc West, senior vice president for banking and aggregation at Fiserv, the producer of PopMoney, a P2P system used by heavyweights like Citibank and U.S. Bank.

“Financial Institutions look to have a consistent relationship with their customers,” West said. “So they look at something like a Venmo and they say, `You know, we’ve seen 100 of these companies come in and go out.’”

West and Fiserv believe that, given the choice, customers will prefer to rely on a trusted entity, like their bank, to make P2P payments. Indeed, a study by Boston-based Bain & Co., a consulting firm, showed that just 6% of domestic customers switched banks last year, and the international rate was even lower, at 3%.

Regardless of who wins the P2P payments battle, one thing is clear: We’re witnessing a revolution in the way people move money around the world. Gone are the days of relatively high fees charged by traditional money transfer networks like Western Union.

Some P2P payment providers offer cheaper alternatives for anyone looking to send money across the border, which can trigger much higher charges. PayPal, for example, has very low fees – in many cases, a flat rate of 50 cents – for sending or receiving money in the U.S. to or from friends and family in other countries. However, there’s a two to three day transfer delay between PayPal and the target bank account.

“We are making sure to keep it simple so anyone can use PayPal whether online, in-store or on-the-go,’’ says PayPal’s Chris Morse, noting that the service is available in 203 markets and can accommodate 26 currencies and 26 languages.

There are legal and regulatory issues at play where international transfers are concerned, and that has been a roadblock for services like Venmo, Square Cash and PopMoney. As an international provider, PayPal has been looked at by government agencies, including the Treasury Department’s Terrorism and Financial Intelligence office and the Internal Revenue Service, as a potential means for money laundering or illicit funding. The eBay unit says it screens customers against government watch lists and remains in compliance with Treasury requirements and global sanctions.

“As P2P matures,” West says, “it’s a much more natural payment tool for the underserved or unbanked population, because the transaction sizes are much smaller and more frequent and the fees are way less than a Western Union or a Moneygram.”

With an estimated 68 million Americans either underserved or unbanked, not to mention more than 40 million who are foreign-born, there appears to be plenty of opportunity for payment services providers. And as these online systems spread, there’s less and less wiggle room when it comes to forking over the dough you owe.

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John Stephens is a Los Angeles-based writer and editor. He covers banking and finance for NerdWallet, a website devoted to helping consumers make smart financial decisions. Follow him on Twitter: @ItsJohnStephens