Apple, Banks in Talks on Mobile Person-to-Person Payment Service

Apple Inc. is in discussions with U.S. banks to develop a mobile person-to-person payment service that would compete with PayPal Inc.'s popular Venmo platform, according to people familiar with the talks.

The talks are ongoing, and it is unclear if any of the banks have struck an agreement with Apple, these people said. Key details remain in flux, including technical aspects that would determine how the service would tie into the banking industry's existing infrastructure, they said.

The service under consideration would allow consumers to zap payments from their checking accounts to recipients through their Apple devices. The service would likely be linked to the company's Apple Pay system, which allows customers to make credit-card and debit-card payments with their mobile phones.

A launch isn't imminent, but one person said such a service could get off the ground next year.

Apple has been talking with a number of banks about the service, including J.P. Morgan Chase & Co., Capital One Financial Corp., Wells Fargo & Co. and U.S. Bancorp.

The move is another effort by Apple to tighten its hold on customers by getting them to use their iPhones for everyday needs, including financial services.

It also represents the latest attempt by banks and other providers to shift Americans away from cash and checks, which are still the most popular methods that people use to make payments to one another.

A slew of other Silicon Valley giants are also trying to get consumers to make the shift. In addition to PayPal's Venmo service, person-to-person payments are also offered by Google Inc., payment startup Square Inc. and Facebook Inc.

Venmo is one of the fastest-growing services, now accounting for 19% of mobile person-to-person payments, according to a report from Aite Group LLC, a consulting firm that focuses on the payments industry.

It is favored by young American adults who particularly like a feature in which they can list their payments on a social media feed—noting for friends when they shared a dinner check or for roommates when they paid a utility bill, for example.

Sending money is free through Venmo when pulled from a linked bank account, but there is a 3% fee on credit cards and some debit cards. Receiving money through the Venmo app is always free.

Consumers made $2.1 billion worth of mobile payments using Venmo in the third quarter, up from $700 million in the year-earlier period, according to PayPal.

Still, mobile payments—whether to a business or an individual—haven't gained much traction even though a growing number of Americans are aware that they can use their phones to pay for goods and services.

Fewer than one in five North Americans use their mobile phones to make at least one payment a week, according to a report issued last month by Accenture. The study was based on a survey of 4,000 smartphone users.

"The market is still wide open for mobile person-to-person payments," says Talie Baker, an Aite analyst.

One of the options being considered by Apple is to hook into an existing person-to-person payment service called clearXchange that is already offered by the nation's banks, according to a person familiar with the talks. The service, which has recently been overhauled and expanded, lets people use their checking account to send each other money with an email address or cellphone number.

It isn't clear how Apple intends to make money from the service. Indeed, the company may view a person-to-person offering mostly as a way to get more consumers to convert to its phones.

Under the current discussions, Apple wouldn't charge the banks for participating in its person-to-person payment service, said the person familiar with the talks. That is different from Apple Pay in which the banks pay Apple for each transaction.

Apple has also added other services, including its new streaming music service, aimed at keeping the iPhone central to customers' lives. The goal is to one day eliminate the need to carry a wallet or any other device other than the iPhone.

Apple introduced Apple Pay in Oct. 2014. Over the last year, it has steadily added banks and merchants willing to accept Apple Pay. It is become a more crowded field with Alphabet Inc.'s Google and Samsung Electronics Co. rolling out mobile payment services of their own.

Facebook introduced peer-to-peer payments through its Messenger service in March. Once a user adds a debit card to its Facebook account, they can send money through the chat window.

Google Wallet allows users to send payments to each other via debit card through email. Square also allows peer-to-peer payments using debit cards to users who have created a "$cashtag" account with the service.

Apple Pay is more widely known than other mobile payment options, but it is still in its early stages. Of eligible Apple Pay users, only 13% said they had tried the service, according to a June survey conducted by PYMNTS.com, a payments industry news site, and InfoScout, an analytics firm. That figure was down from 15% in March.

Apple has said it has 2,500 U.S. issuing banks supporting Apple Pay and it expects more than 1.5 million locations to accept its payment service by year-end.

Last month, Apple Chief Executive Tim Cook said Apple Pay transactions are growing by more than 10% "month after month." He said Starbucks will start accepting Apple Pay at all of its U.S. stores in 2016.

There have been security concerns about the multiple new ways for consumers to send money. The Federal Deposit Insurance Corp. last year warned consumers that person-to-person services can carry fees and privacy risks, particularly if there is a social media aspect to them.

The FDIC also encouraged consumers to consider a person-to-person payment service that is owned by a bank rather than one that is provided by a third party. The agency noted that funds held in a bank account are insured by the FDIC, while other providers may not offer that protection.

Most person-to-person services require the consumer to set up an account and identify a payment source, such as a checking account. The sender must have certain information of the recipient, often a telephone number or email address, before they can send a payment.

In a report issued last week, Aite estimated that U.S. households made more than $1.2 trillion worth of person-to-person payments last year. The payments, most of which were made by cash and checks, range from gifts to shared restaurant bills to alimony.

Nearly half of all person-to-person mobile payments were made through mobile banking applications, according to the Aite survey of 1,724 U.S. consumers.

-Daisuke Wakabayashi contributed to this article.

By Robin Sidel