PUSH Payments Part III: The Second Generation, Instant
Venmo gets all the press but hidden in news releases and public filings, you start to see that PUSH Payments has become truly Instant. That immediacy has allowed it to go commercial with a revenue model and an ever steepening, exponential adoption curve. Here’s a chart comparing the first years of Venmo P2P transaction volume to Square’s Instant Deposit.

This growth is even more remarkable considering Square charges 1% (my estimate is $2.50 per transaction) on the amount transferred. It’s a fee that allows the customer to move money between accounts (no third party involved) and remove a 3 business day lag on funds. In the second quarter of 2018, Square customers paid $40 mm to PUSH $4 billion of their own money from one account into another. It shows the value of instant money. The following chart shows the line item on Square’s income statement that has Instant Funding. Instant PUSH Payments are clearly driving revenue for Square.

The rest of the merchant processing industry noticed. Stripe announced Instant in September 2016, Paypal in June 2017, Vantiv in September 2017 and Paysafe in Jun 2018 (to be released in mid-July 2018). The success of Square’s Instant Deposit as a new revenue stream was eye-opening. Nevertheless the ability of Instant to change an industry hadn’t yet become apparent. Paypal has kept relatively quiet about its new PUSH capabilities. Vantiv has almost non-existent marketing about its PUSH product and Paysafe is yet to launch.
It’s the ride-share vertical within the merchant processing industry that really demonstrated the power of Instant as a way for a company to gain market share and disrupt the competitive dynamic in an industry. Ride-share is a duopoly with Uber and Lyft. In December 2015, Lyft through its partnership with Stripe announced Express Pay which made Instant PUSH Payments to drivers on demand for a fee of 50 cents. In just 10 short months, Lyft was making half of all driver payouts using Express Pay. Lyft users and reporters raved about the utility of Express Pay. It took Uber almost a year to respond with its PUSH Payment service called Instant Pay but at that point the game was already lost (it helped that Uber made some other mis-steps in 2016 and 2017). Although Uber is the biggest company, Lyft is rapidly gaining ground in the US market. The introduction of Lyft’s Express Pay saw a quadrupling of drivers in 2 years and at the end of 2017, it meant Lyft had double the drivers of Uber in the United States. As a company in the Merchant Processing space, would you rather be Lyft which quadrupled market share in 2 years with the help of PUSH Payments, or would you rather be Uber which was late?

In just one year, PUSH Payments had become table stakes for gig economy companies. Lyft, Uber, Caviar, Instakart, Postmates all compete for the same pool of drivers and part time workers. Assuming compensation is the same, why would any worker choose weekly pay on the employer’s schedule vs. on-demand, instant pay?
In the Merchant Processing vertical, Instant PUSH Payments proved for the first time that it could generate a very profitable revenue stream (Square) or be used to kill the competition on market share (Lyft).
Why hasn’t every company in every industry in the US adopted PUSH? One reason has been high failure rates. The well known PUSH implementations to date fail with 15–20% of the debit cards out there. Just as the utility of Ease of Use was enough for Venmo users to ignore delayed payments, the utility of Instant was enough for Square, Lyft and Uber users to forget about Ubiquity. The M2M and recurring nature of the use case helped users ignore high failure rates. Here’s how the customer thought process worked through the pros and cons of Instant but NOT Ubiquitous payments.
- Pro: Access to Instant. When there wasn’t instant access to funds before, having it 80–85% of the time was good enough.
- Cons: High Failure Rates.
- Am I an early adopter who’s willing to put up with inconvenience? Yes, since I chose to work with a disruptor, internet only company like Square, Lyft or Uber, I’m ok with imperfection as long as the benefit is big.
- Will I lose my money? No, it’s a M2M transaction so the money will default to one of my accounts.
- Can I switch? No, Lyft, Uber and Square and very few others offer the service. And failure rates are the same at the few places that offer it.
- Is there an alternative way to get PUSHed? Yes, I can get a debit card at another bank which supports PUSH.
- Is the alternative worth it? Yes, since the transactions are recurring, it’s worth spending an hour applying for a new account in order to get many instant PUSH Payments in the future.
For PUSH to go mass market and become an accepted piece of our everyday lives, it will need to reduce high failure rates and become Ubiquitous. PUSH Payment use cases in other verticals are mainly intermittent (not recurring) transactions between third parties (not M2M). In those cases, customers feel uneasy with high failure rates. Who knows where the money goes? Both the sender and receiver will worry that the money is lost in the ether. Even in the Merchant Processing industry, the great majority of merchants won’t be willing to put up with high failure rates particularly if a better solution exists. In the next article, we’ll see what progress companies have made in making PUSH work everywhere.
