U.S. Financial Institutions

Commercial banks, thrift institutions, and credit unions offer a wide range of financial services for businesses and consumers. Typical services offered by depository financial institutions are listed in (Figure). Some financial institutions specialize in providing financial services to a particular type of customer, such as consumer banking services or business banking services.

Banks Take on P2P Payments

Person-to-person (P2P) payment systems are big business, and U.S. banks are now working together to compete in this billion-dollar industry. P2P transfers made through mobile apps such as Venmo, PayPal, Square Cash, and others accounted for more than $147 billion in digital payments in 2016, according to recent research by the Aite Group.

The simplicity of P2P apps has made them a part of everyday life for millions, especially millennials and young adults who use their smartphones for many daily activities. Venmo, for example, requires merely a phone number and email in order for someone to transfer money to a friend (and the friend creates a Venmo account to receive payment). Social media sites also encourage their members to transfer money via mobile apps, such as Google Wallet and Facebook Messenger.

Banks have been successful allowing their own customers to transfer money via apps; however, P2P transfers have been limited to other customers of the same bank – until now. A consortium of more than 30 banks recently introduced a mobile app called Zelle, which can be used by anyone to transfer funds to customers across these banking institutions.

A downside of using Venmo is that it may take a day or two for money to arrive in a recipient's account because the money flows through an intermediary. With Zelle, the transfer of money between two accounts will occur instantaneously, making payments happen quickly. For now, most banks using Zelle are making the service free of charge – knowing that it is in their best interest to migrate people to a cashless and checkless environment, which will eventually lower their costs in terms of services, labor, overhead, etc.

Is a cashless society imminent now that major banks have gotten on board with P2P payments? Probably not, but the banking industry's commitment to challenging Venmo and other digital payment systems eventually may result in a stronger revenue stream and underscores their business strategy of staying connected to customers of all ages.

Critical Thinking Questions

1. Does working together on a P2P system help banks stay competitive? Explain your reasoning.
2. Do you think P2P payment systems will eventually eliminate the use of cash in our society? Why or why not?

Five Largest U.S. Credit Unions

1. Navy Federal Credit Union, Vienna, Virginia
2. State Employees Credit Union, Raleigh, North Carolina
3. Pentagon Federal Credit Union, Alexandria, Virginia
4. Boeing Employees Credit Union, Tukwila, Washington
5. Schoolfirst Federal Credit Union, Santa Ana, California