Whether you are splitting a bill, opting in for a friend’s gift or giving back loaned money to your friend, Peer-to-Peer (P2P) payments make it easy. In many ways, P2P payments closely resemble cash exchange, except all transfers can happen without the two “peers” ever meeting.
How does it all work?
P2P payments allow the transfer of funds between two parties using their individual banking accounts or credit cards through a mobile app. Examples of P2P providers are Venmo and Cash App (USA), WeChat and Alipay (China), Paytm (India), Jiffy and SatisPay (Italy) and Kwitt (Germany). In addition, providers such as PayPal, Apple Pay and Google Pay offer P2P payments among other functions. The choices are many. But, whichever platform you choose, setting up an account is typically easy: after a quick account set up, you link your bank account or credit card to it. In addition, some apps might require further verification information and passwords to increase security. However, after your account is set up, you can find other users by their username, their email, or your phone contacts and send money with just a few clicks: You choose who you are sending money to, the amount of the transaction, you may add what the payment is for and submit. Then, the transfer usually just takes a few seconds. Done.
P2P payments are already being used by more than one-third of American mobile users. Being commonplace, you hear people often say “I’ll Venmo you” instead of simply saying “I’ll pay you back.” Cash App by Square Inc is mentioned in many song lyrics and according to a survey by Lendedu one third of millennials paid for drugs or gambling by P2P payments. Even a cash-dominated economy like Germany’s shows a steady annual decline of 1-2 % in cash usage across all age groups, leading to an increase in use of card and digital payments (1). With no doubt, this market is booming globally.
What are the pros and cons of using P2P payments?
P2P payments are all about ease-of-use, convenience, and speed. Therefore, this fast and ubiquitous payment system could come in handy to pay bills last minute avoiding late and overdraft fees. In addition, there is no need to consider pending payments, which helps to avoid errors and overdraft fees, because payments are booked almost instantly. Overall this sounds great, but what are the risks?
Faster and easier payments can also be used for faster and easier scams and mistakes are made as easy and fast as the payment itself. Thereby, consumers have weak to no protection if money is accidentally sent to the wrong person or in the wrong amount, or if consumers were scammed. Importantly, those payments are not managed by a bank even though they might be advertised by one. So, they do not come with the same protection than banking products like credit cards.
However, following a few tips and being mindful can decrease the risks, so you can take advantage of those easy and convenient payments safely.
Tips for using P2P payments
- Send money only to people you know and trust
P2P payments are instant and irreversible, which scammers like to exploit.
- Opt-in to highest security
Often extra steps are required to get the highest level of security. Check actively for and use all protections offered, such as PINs
- Double and Triple-check your recipients’ details
Before you submit the payment make sure you have entered all information correctly. If you have any doubts, send a small amount first to confirm that your intended recipient received it.
- Keep your app up to date
Hackers are always trying to exploit vulnerabilities, using automatic updates makes it harder for them.
- Check account settings
Since some P2P payment apps share data on social media, adjust account settings based on what you are comfortable telling the world.
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