What Are Peer-to-Peer (P2P) Payments and How Do They Work?

Peer-to-peer mobile payments like Google Wallet have gone mainstream

The phrase, peer-to-peer payments (or P2P payments), refers to the method of transferring funds from one person to another without the direct involvement of a third-party.

Many smartphone banking apps support P2P payment functionality in the form of bank account transfers. The biggest movers in the P2P sector though are the numerous companies such as PayPal, Venmo, and Cash App (formerly Square Cash) which have sprung up and focus almost entirely on making it easier, faster, and cheaper for their users to send money to each other than with traditional banks.

Many social network and messaging apps have also begun to offer P2P payment services.

When Do People Use P2P Apps?

Peer-to-peer payment apps can be used to send funds to other people for any reason at any time. Some of the more-popular reasons to use them are for splitting a bill at a restaurant or for gifting money to a family member or friend.

Many businesses also accept payment from some P2P payment apps so they can also be used to pay for a service or product. Note however that not all mobile payments apps support peer-to-peer money transfers. Microsoft's Microsoft Wallet is one example of a mobile app that can be used to make purchases within a store but can't transfer money to someone else.

Two people with smartphones having coffee

Are Venmo and Other Peer-to-Peer Payments Safe?

No technology is completely safe from security breaches so it's always important to read an app's reviews and research it before downloading. In general, the bigger the company behind an app is, the more resources and time they put into improving security and usability. It's completely understandable to be suspicious of new peer-to-peer payment apps with only a few reviews and no press coverage.

Always research an app thouroughly before using it. Especially if you're planning to use it to manage your money.

How to Secure Your P2P Apps

The biggest risk to P2P payment app security is usually not the app's code or the company behind it but the user not taking the appropriate measures to protect their information and funds. Here's how to make your P2P apps as safe as possible.

  1. Use a Unique Password: As with all online services, it's important to protect your peer-to-peer payment account with a strong password that doesn't contain any words and does use a combination of upper and lowercase numbers, letters, and symbols. You should also avoid using the same password for more than one service because if one of them gets hacked, all of your accounts become compromised.
  2. Use a Unique PIN Code: A numerical PIN code may be optional but it's highly recommended that you enable it and, like your password, make it unique to each app or service.
  3. Enable 2FA: 2FA, or 2-factor authentication, is an extra layer of security that requires the input of additional login information before gaining access to an app. Examples of 2FA are the Google or Microsoft Authentication apps or having a new unique PIN code generated via an SMS message. Not all apps support 2FA but it should be enabled if it's available, especially when using an app that has access to your money.
  4. Enable Email Notifications: Most P2P apps have an option in settings which, once enabled, will send you an email every time money is sent from your account. This is a simple and convenient way to stay up-to-date on your account's activity.
  5. Check Your Transaction History: Another way to make sure your peer-to-peer app or related account is secure is to check your transaction history every now and again. A record of all of your sent and received payments should be viewable within your app.
  6. Double-Check the Payee's Address: There's nothing worse than waiting for a transaction to go through only to realize that your money has been sent to the wrong person. Whether you're using someone's name, email address, or mobile address book entry to send a P2P, always check that the information is correct.

What Mobile Payment Apps Are Popular?

PayPal, Cash App, and Venmo focus almost exclusively on sending funds between users and are extremely popular for both casual and business transactions.

Google and Apple have introduced their own first-party payment services, Google Pay and Apple Pay Cash. Both work with the respective company's smartphones and tablets and can be used to make payments in person or send money to a user's contacts. Apple's iMessage messaging service supports Apple Pay Cash and allows users of it to send funds directly from within a text chat.

Facebook has also begun experimenting with P2P payments with its own chat app, Facebook Messenger, seemingly drawing inspiration from WeChat and Line who have dominated their respective home peer-to-peer mobile payment markets of China and Japan with WeChat Pay and Line Pay. When you hear about the incredible popularity of mobile shopping in Asia, WeChat and Line are almost always part of the conversation.

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