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You may not be familiar with the term peer-to-peer (P2P) payments, but chances are you regularly use a P2P service. After going out to dinner with friends, you might pay your part of the bill by sending your friends money through an app instead of cash. Or you might send your roommate your half of the rent on your phone instead of writing a check.
Whatever the situation, services with digital payments and money transfers may already be your norm. 2019 data showed that 80% of US consumers had used a P2P payment service, with 50% of new users being people aged 45 years or older.¹
The convenience P2P payment services provide makes them very popular with consumers of all ages. Keep reading to find out how P2P payments work, your options, and how best to utilize the services.
What is P2P?
P2P stands for peer-to-peer (it’s also sometimes referred to as people-to-people). A P2P service allows users to interact with one another without an intermediate third party.
We are exploring P2P payment services and how they work, but keep in mind that P2P can also refer to things like lending and computing software.
How P2P payments work
P2P payments facilitate digital money transfers from one user’s bank account to another. These transfers happen via an online portal or mobile app. To sign up for a P2P payment service, you must choose a platform, upload the app, and enter your bank account or credit or debit card details.
When you are logged in, you can usually search for friends by their contact information (email or phone number) or their username if you know it. Sometimes, people in your contacts will automatically appear. Once you’re ready to send or receive money, you simply choose who you’re sending money to, the amount you’re sending, and the reason for payment (this is sometimes optional), then submit the payment.
Depending on your platform, some P2P apps may allow you to send payments by linking to a savings account, while others may only allow a checking account. Payments to a bank account within your bank’s network are categorized as an internal transfer. A transfer to an account outside the bank’s network is a domestic transfer.
Common P2P payment apps
There are many P2P payment services available to users. Some P2P services are offered by financial institutions, while others are created by financial technology (fintech) companies. Some are only available to current customers, and other platforms provide P2P services to anyone with a bank account.
Here are some of the more common P2P services on the market.
- Cash App
- Google Pay
- Apple Pay
How to choose which P2P payment service to use
When comparing P2P payment options, consider what service provides accessibility and cost-effective features. You should also consider fees you might pay, speed of transfers, who you can and can’t send money to, and compatibility with other applications.
For Chime members, choosing a P2P provider is simple. Chime has a built-in app called Pay Anyone that offers the following advantages:
- No fees ✅
- Send money to anyone ✅
- Instant2 transfers ✅
- Supports other mobile payment platforms ✅
Benefits of using a P2P payment service
P2P payments make sending money to family and loved ones fast and easy. Instead of writing a check, purchasing a money order, or sending a wire transfer, a P2P app allows you to send money without the hassle and potential fees.
The potential risks of using P2P payments
While the advantages of using a P2P service to send money are numerous, there can be some risks with mobile payments.
Online scams, data breaches, and mistaken or fraudulent transactions are potential issues that can arise with a P2P payment service. Always use caution and exercise your best judgment before sending or receiving money online.
To protect yourself, check out our tips to avoid scams and fraud on mobile payment apps.
Many P2P payment providers actively protect users from these sorts of risks. They’ll typically use encryption technology to protect your information and include verification measures like passwords and PINS. That said, it’s up you to safeguard your information and only send money to people you trust.
Are P2P payments a safe way to send and transfer money?
In large part, P2P payments are safe to use. P2P services often have security measures to protect you and your money, such as encryption, multi-factor authentication, and fraud monitoring. But there is always a risk of sending money to bad actors, so take precautions and always double-check your transaction details before sending money.
How long does it take for the money to transfer?
The amount of time it takes for money to transfer from one account to another will vary depending on which P2P payment service you use. The time it takes can range from a few seconds to several business days. Also, keep in mind that some P2P service providers will charge a fee if you want a transfer to go through instantly.
Can you send money on social media apps?
Yes, these are known as social media money transfers. For example, Facebook has Facebook Pay, a feature that lets Facebook friends send payments to each other. Social media money transfers will mostly work the same way a P2P app would.
How much do P2P payments cost?
Some P2P payment services charge nothing to use or download their products, while others might charge a flat fee. When it comes to special services like instant and out-of-network transfers, services might charge a fee. Research the P2P payment provider to see what, if any, fees they charge for transactions.
Embrace the convenience of P2P payments
Digital transactional services like P2P payments are becoming more popular every year. Now may be a good time to start if you haven’t already started using these types of services. Just make sure you are fully aware of how these services work so you can be savvy with your money.