Friends eating outside on patio

All You Need To Know About P2P Payment Apps

Arizona Federal Staff

These days there are so many ways to pay besides cash or card – you can Google your money to your friend, Venmo it or PayPal an online vendor. Peer-to-peer (P2P) money transfer services make it super-convenient to split expenses and send money to friends and family.

First popularized by PayPal, the world of P2P systems has exploded. Many financial institutions offer the option of P2P payments between members, and lots of social media platforms let you transfer money between friends as well. However, the most popular way to pay a friend back is through money transfer apps like PayPal’s Venmo, Square’s Cash App and Zelle. In fact, according to eMarketer, the total value of mobile P2P transactions in the U.S. could increase from $156.49 billion to $244.03 billion from 2018 to 2021.

Here’s what you should know about P2P payment systems:

How do P2P payments work?

Say you’re eating out with a group and one of your friends covers the tab. To pay her back, you log in to your cash-transfer app, find her in your contact list, key in the amount you owe and send. Within seconds, your friend will receive a payment notification – and once the funds actually transfer, she can choose to leave them in her P2P account to use another time or move the money to her checking account.

Is there a fee to transfer money?

Most P2P systems will allow you to make a payment from a linked financial account or directly into the P2P account at no cost. However, several providers will take 2-3% of any payment made with a debit or credit card. Also, if you want the funds transferred to your account immediately, you’ll usually have to pay a flat fee or a small percentage.

How long does it take for the money transfer to clear?

The actual money transfer usually takes one to three business days to clear. As mentioned, if you really need that transfer to clear your account immediately, most providers allow you to pay a small fee to make that happen.

Are P2P payments safe?

All P2P systems are careful to encrypt your financial information and to use security measures for protecting your funds. However, these measures aren’t foolproof. Many P2P systems have been targeted by hackers and scammers.

Protect yourself from P2P scams by taking the following steps:

  • Use two-factor identification and a PIN before completing a transaction.
  • Set up alerts so you will be notified about every transaction.
  • Triple-check your recipient’s information before you send a payment; a misspelled email address could send your money to the wrong person.

If something goes wrong with a P2P payment, who is responsible for covering the loss?

Unfortunately, if you’ve been scammed or have had another issue with a P2P payment, you’re on your own. Most services will offer their assistance to law enforcement agencies and notify users if they’ve been scammed, but that’s usually the extent of their fraud protection.

Lots of users mistakenly think fraud protection will apply for transactions tied to their Visa card or that their financial institution is responsible if a P2P payment goes sideways.

Never use a P2P service for business purposes or for a money transfer with someone you don’t personally know.

If you choose to use your P2P payment service for a business-related transfer, fraud protection is limited even further. P2P services were created to be a means of transferring funds from friend to friend and most services clearly state in their policies that their platforms should not be used in business transactions.

Many consumers, though, choose to ignore these warnings and use Venmo and Square Cash to pay for goods they’ve bought on Craigslist, to sell a used item or even to accept funds for a service they’ve provided.

If you disregard these rules, the service will likely offer no fraud protection or assistance in reclaiming lost funds. Many of them will not even honor a business transaction at all. It’s best to only use P2P payment services among friends and people you know and trust.

If something goes wrong with a P2P payment, you’ll be the one who is responsible for the fallout.

While your financial institution never wants to see you lose money for a simple mistake or because you’ve been victimized by a scam, there’s not much they can do about it after the fact. For this very reason, we strongly advocate practicing caution when transferring money online or by app.

Your Turn: How has a P2P payment system worked out for you? Tell us about it in the comments, below.