Peer-to-peer (P2P) payments have been around for a while, but they are becoming a more and more popular fintech solution when paying for goods and services. It’s estimated the P2P online payment market will be worth $2598.6 million in 2022.
Venmo, PayPal, Square Cash, and Zelle are all popular P2P payment platforms. Consumers love them for their convenience, speed, and security. And businesses are also benefiting.
The payment landscape today is complex. It’s rare to find one solution that fits every need. P2P payment services are another payment option to have in the bag to make sending and receiving money even more convenient.
Speaking of convenience, this post sheds light on the fundamentals of P2P payments, how they work, how you can use them, and which providers to consider.Learn More
What Are Peer-to-Peer Payments?
Peer-to-peer payments (sometimes referred to as person-to-person payments) are digital payments between two individuals, a type of mobile banking. The funds are transferred directly from one person’s bank account, checking account, credit or debit card, or payment app, to another person’s bank account, or app.
Where banks have fallen short, P2P payments have stepped in to make things more convenient. The biggest one being that they’re instant.
Unlike transferring funds from one bank account to another, P2P payment platforms do instant transfers. Plus, they have a lot of extra features specifically useful for these types of transactions, like splitting bills.
If you were to do this the traditional way, depending on which bank your payer or payee is with, you may have to wait up to three business days.
How Does P2P Work?
Person-to-person payments work by connecting the payer and the payee through an app or website. The payer enters the amount they want to send and the payee’s email or phone number. The funds are transferred directly from the payer’s bank account, debit card, or credit card to the payee’s P2P account, usually within minutes.
The platforms use a variety of methods to transfer the funds. Some peer payment apps, like PayPal and Venmo, use ACH transfers to send money via a linked bank account. This is the same method your employer uses to deposit your paycheck into your bank account. The transaction will appear instantly in the PayPal or Venmo account. However, it may take a few days to be moved into the payee’s actual bank account. But it’s free with other accounts in the same country.
Other P2P service platforms, like Square Cash and Zelle, use real-time payments networks. These are faster but may cost a small fee.
In all cases, the funds are transferred from the payer’s account to the platform’s account. The platform then transfers the funds to the payee’s account. This process happens behind the scenes and is usually instant. Just enter the amount you want to send, the recipient’s information, and hit send.
How Safe and Secure are P2P Payments?
Peer-to-peer payments are considered safe and secure platforms for performing financial transactions. Like all payment software, they are held to high regulatory standards and use a variety of methods to keep information and funds safe.
These include data encryption, fraud detection and prevention, and two-factor authentication.
When signing up for a peer-to-peer payment platform, users are asked to provide some personal information. Including their name, email address, phone number, and financial information, like their bank account or cardholder data.
This information is encrypted and stored on secure servers. The platforms are proactive against fraud through a variety of early warning services, like monitoring for unusual activity and requiring two-factor authentication and automatic notifications for certain transactions.
If you do happen to become a victim of fraud, most platforms have policies in place to protect you. For example, PayPal has a 180-day refund window for unauthorized transactions.
Companies That Offer P2P Payments
There are a number of companies that offer peer-to-peer payments, each with its own set of features and benefits. The most popular platforms are PayPal, Venmo, Square Cash, and Zelle.
PayPal is one of the oldest and most well-known P2P payment platforms. It’s available in over 200 countries and has over 277 million active users. PayPal offers a number of features, like the ability to send and request money, make online purchases, and transfer funds to a bank account.
PayPal is often preferred over other platforms because of its widespread availability, buyer and seller protection policies, and its ability to make online purchases.
While it’s free to send and receive money, there are fees for certain transactions, like transferring money to bank accounts or making a purchase from a business.
Venmo is a P2P payment app owned by PayPal. It’s popular among young adults and is known for its social features. Venmo is a US-based platform, unavailable elsewhere in the world. It has novel features like letting users post messages and emojis about their transactions.
The benefit of Venmo against other platforms is its ease of use and that it’s instant and social, making it particularly attractive to younger users.
It costs nothing to send, request, or receive money on Venmo. However, there are fees for certain transactions, like transferring money from your Venmo account to a bank account or using a debit card to make a purchase.
Cash App is a P2P payment app created by the mobile payments company Square. It’s popular for its simplicity and lack of fees. Cash App offers a cash card, which is a debit card that can be used with the app. Cash App is available only in the US and UK.
The benefit of using Square Cash is that there are no fees. You can send, request, and receive money for free. The only time you’ll pay a fee is if you use a credit card to make a payment, in which case there’s a 3% fee. The Square Cash debit card also attracts no fees.
Zelle is a P2P payment app created by a consortium of US banks. It’s popular for its speed and wide availability. Zelle is available through a number of banks and credit unions in the US. Signing up for Zelle, users need to provide their bank account information.
The benefit of Zelle is that it’s integrated with a number of financial institutions’ apps. So, users can send and receive money without ever having to download the Zelle app.
Zelle transfers are free for both the sender and the recipient. However, there may be fees associated with using your mobile banking app or website.
Google Pay and Apple Pay
Google Pay and Apple Pay are P2P payment platforms that use near-field communication (NFC) technology to make payments from the user’s mobile device. Google Pay is available on Android devices and Apple Pay can be used on iPhones.
While most think of Google and Apple Pay as mobile payment apps to be used in-store, they are also able to send and receive money from friends and family members.
There are no fees associated with using Google Pay or Apple Pay. However, there may be fees associated with certain transactions, like transferring money to a bank account, or international P2P payments.
Pros and Cons of Using P2P Payments in Your Business
P2P payment platforms are increasingly popular and will continue to be utilized by businesses as a more convenient way to send and receive money. However, there are a few things to keep in mind before using P2P payments in your business.
First, not all P2P payment platforms are created equal. Some have higher fees, while others have more features. It’s important to compare the different providers before signing up for an account.
Second, while P2P payments are convenient, they are not always free. Some platforms charge a fee for certain transactions, so it’s important to check the fees before sending money.
Third, P2P payment platforms are not always the best option for larger transactions. For example, if you’re sending a friend $500, you may want to consider using a different method, such as Venmo’s bank transfer feature, which has no fee for transactions over $500.
P2P payment pros
We have already discussed convenience at length, but the other big pros for P2P payments are:
Funds are typically available immediately
Another big advantage of P2P payments is that the funds are typically available immediately. This is particularly helpful if you need to make a last-minute payment.
Can be a more cost-effective way to send and receive money than using a traditional bank
With lower fees associated with P2P payments, this method can sometimes be a more cost-effective way to send and receive money, when compared to a traditional bank.
Can be used to send invoices and receive payments electronically
Invoicing is a big part of managing business finances, and P2P payments can make the process quicker and easier through electronic invoicing.
While most P2P platforms don’t have built-in capabilities yet, merchants can promote P2P payments by adding their details in the invoice. For example, if you’d like to get paid via Zelle, you can leave a note on the invoice indicating that you accept Zelle payments, along with the email address or phone number associated with your account.
Certain invoicing platforms have built-in features for P2P payments. Invoice Maker, for instance, offers a setting that can add your Venmo QR code directly on the invoice. Customers simply have to scan the code or enter your business details into the Venmo app to initiate the payment.
P2P payment cons
While there are many pros to using P2P payments, there are a few potential cons to consider as well:
Not suitable for large businesses and the B2B sector
While P2P payments may be a convenient option for small businesses serving consumers (e.g., food fair vendors), they’re not ideal for those that deal with high payment volumes and large amounts.
For starters, P2P payment apps impose limits on transaction volume and amounts. (These limits vary depending on your bank and situation.)
P2P payment software is also difficult to navigate from a reporting perspective. Zelle and Venmo, for instance, don’t allow users to filter or sort payment data. If you’re looking for a specific transaction, you need to scroll through your feed to find what you need.
Limited functionality and integrations
Generally speaking, P2P payments are meant for sending and receiving payments—that’s it. As mentioned above, they don’t come with features such as invoicing or analytics.
What’s more, most of these apps don’t have robust integration capabilities, so it’s difficult to connect P2P apps to other areas of your business. This leads to inefficient processes and a lack of data visibility (i.e., a unified view) in your business.
May not be available in all countries
P2P payments are not available in all countries. If you’re doing business internationally, you may need to use a different method of payment.
Fees may apply
As we mentioned earlier, some P2P platforms charge fees for certain transactions. Because most transactions are free, users can think that all are. It’s important to check the fees before sending money.
P2P companies are not banks
P2P companies are not banks, which means they are not subject to the same regulations. This can be both a pro and a con. On the one hand, it allows P2P companies to offer lower fees and more features. On the other hand, it means that there is less protection for users from scammers committing fraud. They are also not FDIC insured. If anything happened to your money, even if it was sent to the wrong person, it would be gone.
P2P can never fully replace other payment methods
P2P payment systems are an added convenience to send and receive money, but they can never fully replace other methods, such as credit cards, ACH, or money transfers. Imagine retailers giving up the point of sale system in place of P2P transactions. It would be a logistic nightmare, taking much more time to process transactions.
Payment processing solutions, such as those offered by Stax, are necessary to build a comprehensive solution for accepting payments.
P2P Payment Platforms: The Bottom Line
P2P payments are a convenient way to send and receive money, but they have some limitations. For the most comprehensive payment processing solution, Stax can provide the ability to process all types of payments, including ACH, credit cards, debit cards, and mobile payments.
FAQs about P2P Payments
Q: What are Peer-to-Peer (P2P) payments?
Peer-to-peer payments (P2P) are digital transactions between two individuals. This type of mobile banking allows funds to be transferred directly from one person’s bank account, checking account, credit or debit card, or payment app to another person’s bank account or app.
Q: How do P2P Payments work?
P2P payments connect the payer and the payee through an app or website. A payer enters the payment amount and the recipient’s email or phone number. Funds are transferred directly from the payer’s bank account, debit, or credit card to the payee’s P2P account.
Q: Are P2P Payments secure?
P2P payments are considered safe platforms for conducting financial transactions. These platforms adhere to high regulatory standards and employ various methods for data encryption, fraud detection and prevention, and two-factor authentication, offering protection from potential scams.
Q: What companies offer P2P Payment services?
Many companies provide P2P payment services, including PayPal, Venmo, Square Cash, and Zelle. They offer different features and benefits. Other options include Google Pay and Apple Pay.
Q: What are the advantages of using P2P Payments in your business?
P2P payments offer convenience due to their fast processing time and cost-effectiveness compared to traditional bank transfer methods. They can also be used to send invoices and receive payments electronically, simplifying the payment process.
Q: Are there any disadvantages to using P2P Payments in your business?
Some potential limitations to consider with P2P payments include their unsuitability for large businesses, limited functionality and integrations, possible fees for certain transactions, and unavailability in some countries.
Q: Can P2P Payments fully replace other payment methods?
While P2P payment systems offer the convenience of sending and receiving money, they cannot entirely replace other methods such as credit cards, ACH, or money transfers. These traditional methods are still essential, especially when dealing with high payment volumes and large amounts.
Q: Does using P2P Payment platforms incur any fees?
While many transactions on P2P platforms are free, some may charge fees for specific transactions. It’s critical to understand the fee structure before proceeding with payments.
Q: How do P2P payment platforms safeguard transaction information?
P2P payment platforms ask users to provide some personal information, like their name, email address, phone number, and financial information. This data is encrypted and stored on secure servers. The platforms monitor for unusual activity, require two-factor authentication, and have automatic notifications for certain transactions to prevent fraudulent activities.
Q: Are P2P companies regulated like banks?
P2P companies are not banks and are not subject to the same regulations. This allows them to offer lower fees and more features; however, this also means less protection for users against fraud.
Stax is the leading provider of payment processing solutions for businesses of all sizes. Contact us today to learn more about our financial services.