SME to consumer p2p payments – the next big (Western) payment behavioural shift?

This week the web was a buzz with the news Apple would be launching peer to peer payments. And while it’s hardly novel from an innovation perspective, the network effects of Apple could be the tipping point for mainstream mobile payments adoption.

While consumer innovations in the p2p space are surging ahead, one area that feels like it is well in truly in the dark ages – in Australasia anyway – is peer to peer payments between businesses and customers.

There are many dynamics at play that discourage innovation in this sector. One of those is the rich river of fees flowing from small businesses to banks in the form of interchange fees.

Unlike Europe, Australian regulators have been far more generous over the years when it comes to caps on weighted interchange fees. But, as of July of this year, the party will be well and truly over. Interchange fees will be limited to a maximum of 0.8 percent – a far cry from the giddy heights of 2.2 percent and above that some premium credit cards were able to garner.

But what if you could design a new system that removed interchange fees altogether? In fact, what if it removed merchant service fees altogether? Well, for a start, small businesses would love you – because they are the ones that face the brunt of these costs on a monthly basis.

That’s exactly what New Zealand entrepreneur Ben Lynch has set out to do with his payments prototype Jude. I caught up with Ben in Sydney yesterday and he took me through the app. And honestly, it seems like a no brainer.

The secret to how Jude works is that it eliminates cards altogether. After all, why do we really need them, if a small business’s bank account and a consumer’s can just talk to one another? Cards are the equivalent of a 90s middleman.

And if we can get two bank accounts to talk to each other, without breaking any banking T&Cs, even better.

So, at prototype stage, the Jude experience for a customer and a business looks like this. When in range of the store, the customer places an order on their Jude App. They then appear on Ben’s custom made point of sale tablet, perched on the merchant’s counter. The shop owner sees the order and the customer’s details, and prepares the order. The customer collects their order, and just walks out. No cards, no mobiles being waved in front of terminals. Beacons placed in the store register all the comings and goings.

And while we’ve seen PayPal and other industry players attempt to create a similar experience, more often than not, they’ve always been linked to an expensive payment transaction – that the merchant needs to foot. But with Jude, like the best things in life, the entire experience is free.

To replace plastic for p2p payments is a behavioural shift for consumers. But if those with the biggest pain point to solve – small business owners – help drive and facilitate this because it saves them a huge amount of money, then that is a golden channel to market. Not to mention the value add for a point of sale vendor as an upgrade feature within their subscription. And while Jude might not generate money from the transaction itself, the data stream of payments coupled with SKU data is a monetisation opportunity in itself.

You can read more about Ben and Jude’s journey here.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech. Jessica Ellerm is a thought leader specializing in Small Business.

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