What is Peer-to-Peer payments? And How Do They Work?

People are no longer carrying as much cash as they used to. That trend is even more pronounced among younger generations. Technology has a habit of improving actual life experiences in the finance realm as well. With the innovations of the ATM machine and credit card POS terminals, individuals no longer needed to carry as much cash or their checkbooks.

Smartphones and fast internet connections have enabled new kinds of changes to how we transact. This time technology is allowing us to do away with the wallet. Everything we used carry in it, cash, credit or debit cards, family pictures, notes, business cards, etc. can now all be stored on a smartphone. With the help P2P payments apps, individuals can easily split dinner checks, pay utility bills, or simply conduct small transactions at the local convenient store. 

What are P2P payments?

Peer-to-Peer payments (P2P) are apps or functionality that let individuals send money to another individual. All that a user needs to send money to another individual is either their user ID, email address, or phone number. 

These apps can be easily downloaded from the Google Play Store and Apple App Store. Once downloaded, you can use a phone number and/or an email address to set up an account and link a bank checking or debit card to it. 

Benefits of P2P payments

One of the biggest appeals of P2P payments is that funds transfers to peers using these apps is usually free. Various P2P apps are vying for customers and the main enticements they use to build up their networks is to offer it free of cost. 

A second benefit is the ease by which users can send money to one another. Nearly 90% of adults and teens have a smartphone in the U.S. Needless to say, it’s the majority of the younger Gen-Zs and millennials that are showing the fastest adoption rates P2P payments given their disdain for carrying cash. 

Fund transfer being completed within minutes is another key benefit of P2P payments. In most cases, the transfers are literally as fast as just handing someone cash.

Overall, these apps take the hassle out of doing financial tasks. There are less trips to an ATM, possible saving you money on out of networks fees. There are less trips to a bank overall. You don’t need to go anywhere to pay bills, order check books as you won’t be using them as much, or even to complete loan applications as that process is quickly becoming automated. P2P payment apps do a good job keep a track of your expenses so they can be used for financial recordkeeping or sync with other money management software to export data into them.

Drawbacks of P2P payments

There are a few drawbacks that come with P2P payments. First not everything is free. There are numerous apps that offer P2P payments, and each has its own set of drawbacks. Some may not let you transfer payments by linking to a credit card. Another app may limit how much you can transfer to your back account per transaction with overall caps to transfers in each month.

Transferring money back to your own bank account can be another headache. Many apps let you transfer funds to your bank account, but the turnaround time can be anywhere from a day to as long as five days. If you’d like to receive your money instantaneously, that is an option, but you have to pay for that.

It seems as if all these P2P payment providers are a brand of a digital wallet and they want the wallet holders to keep their money loaded in it at all times. I guess that may make sense from a product sense to bring you back and get you to use it as often as possible and make that P2P system integral and sticky to users’ daily lives. However, it takes away some of the convenience that these apps were originally marketed to offer. 

Users can end up juggling between what apps may let them transfer which funds and how quickly if they are conscious about it. Otherwise, they may just resign to single app, being jaded by the whole process, and end up paying small fees as the of cost of convenience and the ease of mind. 

Some common P2P payments service providers

ServiceBest forMain featuresAccepted among RetailersInstant Fund transfersCan Link a Credit Card
ZelleQuick funds transfers to bank accountDirect funds transfer to bank account
Ability to link with a large number of banks and credit unions
NoYesNo
VenmoUsers who have many other users of the app in their networkVery popular app for small P2P transfersYes, via QR codes at select retailersYes, for a feeYes, for a fee
Cash AppUsers looking to investLets users invest in stocks and cryptocurrencies
Partners with retailers for discounts
NoYes, for a feeYes, for a fee
PayPalVariety of users; regular shoppers, businesses, and individuals looking for simple P2P transfersAllows users to use a host of transfer options; debit, credit, bank account, Paypal wallet, and Paypal Credit
Lets users conduct large-ticket transactions
Accepted by many online and retail stores
NoYes, for a feeYes, for a fee
Google PayDigital wallet usersGoogle Pay is primarily a digital wallet and users of both iOS and Android can use it.
Accepted by many online and retail stores
Yes, via NFC NoNo
Apple Pay CashMainly Apple product enthusiastsOnly available for iOS users and can be easily used within the Apple ecosystem
Accepted by many online and retail stores
YesYes, for a feeNo

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