P2P stands for Peer To Peer, a payment system that involves a third-party application to connect users and their bank accounts to other users and their bank accounts, using a smartphone or tablet. These are also commonly known as money transfer apps. Some examples of popular P2P apps are Cash App, Venmo, PayPal, Google Pay and Zelle.
In order to use a P2P payment system, a user would sign up on the chosen app, and link that app to their various bank accounts, such as debit or credit card accounts. For a user to send money to someone using the app, the recipient also needs to be using the same app. In simple terms, the app takes a chosen amount of money from the sender’s account and then sends it to the recipient’s app. Once the recipient sees the money in the app, they can then transfer it to their own linked account, or choose to keep it in the app and use it to send on to someone else.
P2P payment apps are very popular amongst certain demographics. Younger people, whose whole lives revolve around their mobile phones, are big users of this technology. They are also very popular in emerging markets. In less developed parts of the world, access to banking can be problematic, but mobile phones are a way of life. In these places even the unbanked use P2P apps to receive money and then either pay others or withdraw money in cash at convenient locations such as supermarkets.
There are great advantages for consumers in using P2P apps. Some of these include:
- Simplicity – in most cases a recipient is identified with an email address or a phone number, and not more complex banking details
- Speed – transfers within an app take just a few seconds
- Convenience – most people have their phones with them at all times, so they can make or receive transfers from anywhere
- Cashless – many people do not like carrying cash or cards for safety reasons, so P2P apps are a very attractive alternative. In addition, cash can be very unhygienic
- Global access – many apps enable users to send money internationally with far less difficulty than traditional banking channels
- Privacy – there is very little personal information attached to a transfer. The recipient does not know anything about the sender’s banking information
- Security – transactions are encrypted and some apps even use biometrics and notifications for transactions
- Preferable conversion rates – in the case of international transfers many users enjoy much lower exchange rates than traditional international transfers
There are of course also downsides to the technology:
- Refunds in the case of error are very hard to initiate, if not impossible in some cases
- Although in-app transfers are almost instantaneous in most cases, transferring that money into a bank account may take several days
- Apps are subject to outages, the same as any other digital environment
- While P2P apps are for the most part secure, users are frequently targeted by scammers into making payments to them, which cannot be refunded
- The P2P ecosystem is fragmented – senders and receivers need to be on the same app, and there are a lot of choices
- There is not a lot of regulation in the sector
- There may be caps on amounts that can be transferred
- Some P2P apps require that an in-app balance is maintained, which is essentially dead money that cannot be used
P2P apps are very popular in the consumer-to-consumer environment, indeed that is what they were designed for initially. They are for example a very easy way for friends and family to chip in for a gift, or to split a restaurant bill.
As these apps gain popularity, more and more merchants are seeing an advantage in using this method to accept payments. The technology is very useful for small businesses, and in particular for traveling businesses, such as plumbers, appliance repairmen, cleaners, food trucks, and dog groomers. Some P2P even apps offer specific business accounts and facilities such as QR codes for payments.
Larger merchants and payment providers are also looking to accommodate these methods of payment and integrate them into POS systems and online payment gateways. Venmo, for example, can be incorporated into PayPals online checkout system, although this is primarily because PayPal owns Venmo. But as mentioned previously, there is a lot of choice in the P2P app landscape, and at this time merchants may have to sign up for multiple services in order to accommodate their customers. This could actually make what seems like a quick and simple system actually quite time-consuming for businesses, as they would need to reconcile multiple systems. This would be particularly tedious for small businesses, where human resources are more limited.
At Baer’s Crest, we look forward to a future with easier, faster, and even safer payment methods for our customers. As technology improves and becomes more accessible, we incorporate new methods into our client offerings. As always, our focus is on supplying payment solutions that are reliable, secure, and cost-effective for our multitude of clients. Talk to us about the right payment solution for your business.