August 9, 2022

Understanding Peer-to-Peer Payments

Peer-to-peer payments allow a user to transfer funds from his account to another individual's account via the digital medium. Learn what are peer to peer...

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Anuska

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What are Peer to Peer Payments?

The advent of digitalization calls for a revolution in every industry, including the financial realm. One such revolutionized feature that is a boon to payments, e-commerce, and other financial sectors is cashless payment or payment via the P2P system.

A peer-to-peer or P2P payment system allows you to transfer or receive money directly to your bank accounts using a smart device like a mobile that has been linked to your bank account. It is a non-credit card system that facilitates faster and more secure transactions. At some point in time, we all have used popular money transfer applications like Google Pay, Paytm, Venmo, etc., which are a few examples of P2P services.

Payment through the peer-to-peer payment system is widely accepted not just for buying consumable goods or services but also for buying cryptocurrencies as well. Blockchain peer-to-peer payments allow lesser-cost of transactions, transparency, reduced risk, and faster services.

How Do P2P Payments Work?

Now that we know what peer-to-peer payments are let’s understand how they work. The sender and receiver are both required to set up an account in a peer-to-peer payment system and link it either to their bank accounts or their debit/credit cards. Setting up an account is quite easy; all you need to do is provide the basic pieces of information like your name, bank name, bank account number, bank branch, etc.

However, the requirements vary from app to app. You may also need to enter passwords or PINs set up by you during the activation of the account every time to access the peer-to-peer payment system. If you are sending money, you may get multiple options on various apps, like inputting the phone number, email address, or account number of the receiver to send money. Few money transfer apps also allow you to request payments from the other party.

Balance vs. No Balance

Various peer-to-peer transfer applications have different requirements for maintaining a balance. Few money transfer apps may require keeping a balance to facilitate payments. You can also top up your balance, which may take a few days, and the banks may charge you too. However, in a few apps, maintaining a balance is not mandatory.

Accessing your Funds

If the money transfer app has a balance, then you can transfer the funds to your account normally or withdraw cash using the linked card. The process may cost you some charges from your bank and may take a few days before the funds are available in your bank account.

Which P2P Services Should You Consider?

So now we know what are peer-to-peer payment systems, and how they work. There are quite a few platforms out there offering P2P services, many of them smartphone-based so you can participate in peer-to-peer transfers with complete ease on the go, and some also offer desktop services. These P2P platforms provide their products and services across the globe, and some operate within the borders of their native countries.

In this section, we find out about some of the top P2P services you can consider using for simple, quick transactions with other users. Without further ado, let’s jump into the list!

Zelle
Popmoney
Paypal
Venmo
Cash App
Google Pay
UPI

1. Zelle

Zelle is one of the most popular peer-to-peer payment systems at the moment. Users can send each other payments by simply searching for the email address or phone number of another user, and the transactions take place within a few minutes. Many banking apps allow direct access to Zelle.

2. Popmoney

Popmoney allows easy peer-to-peer transfers just like Zelle so that users can send and receive money comfortably from their contacts. The application can be linked directly to your bank account, or you can make payments using a debit or credit card. The transfers might take up to three business days.

3. Paypal

One of the best known global peer-to-peer payment systems, Paypal allows users to exchange funds between themselves regardless of their location. The platform even offers a service named Xoom which allows users to convert foreign currency, and you can link any bank account of yours on Paypal.

4. Venmo

Venmo is quite similar to Paypal, and it is even owned by the Paypal platform. There’s one big difference though: Venmo does not facilitate international payments. What’s more, while Paypal is available through both desktop and mobile apps, the same can not be said for Venmo, which you can only access through your phone.

5. Cash App

Cash App is a peer-to-peer payment system only available in the US and the UK, and it allows you to make payments between mobile users. You can link your debit card, credit card, and/or bank accounts on the app to avail of the services of the platform. With Cash App, you can make standard payments that take one to three business days or opt for instant transfers.

6. Google Pay

This one is a peer-to-peer payment system that obviously requires you to have a Google account to initiate transactions or receive payments. You can link your Google Pay account to your debit card or your bank account to send and receive money. What’s more, you can even link your Paypal account on Google Pay.

7. UPI

UPI or the Unified Payments Interface allows you to make real-time payments. The peer-to-peer payment system was developed by the National Payments Corporation of India (NPCI). Through a UPI system, you can make both peer-to-peer (P2P) and person-to-merchant (P2M) payments. The system operates on mobile devices and transfers funds between two bank accounts immediately.

How Can I Use Peer-to-Peer Payments Safely?

Sending money online can make you wary about the safety of your personal information and bank account. While being suspicious is healthy when it comes to your financial safety, you can rest assured in the case of a peer-to-peer transfer system since it is laced with layers of security.

P2P money transfer apps use data encryption and anti-fraud monitoring tools apart from other safety measures to facilitate safe and secure transactions. However, there are a few things that the sender should keep in mind while making payments, like never sharing your bank details or double-checking the person’s or organization’s credentials before sending the money through. While P2P service providers ensure safety in transactions from their side, it is also important that you, as a user, pay attention to whom you are sending money to and avoid the risk of getting involved in a scam. It is advisable to only carry out transactions with the people you know to minimize fraud chances.

Are P2P Payments Fast?

Peer-to-peer payment systems are usually pretty fast, and with some, you can send money instantaneously. Transaction notifications get sent as soon as a counterparty initiates a transfer, and once you receive the money, you can almost immediately use the same funds to make another payment.

Keep in mind that this only applies when you are sending the money to someone directly within the app. If you are participating in a transaction with someone outside of the app, the funds might need one to three business days at least to reach the right bank account. However, some service providers like Zelle can process even these transactions quite fast.

What are the Advantages and Disadvantages of P2P Payments?

The peer-to-peer payment system has some advantages as well as disadvantages:

Advantages of Peer-to-Peer Payments

The major benefits of peer-to-peer transfer are that it is user-friendly, easier to use, takes only a few seconds to verify and complete the transactions, and it is safe as well. In case you have forgotten your wallet at home, you don’t have to worry about it; P2P money transfers are cashless and convenient and can be done via your mobile phone.

Disadvantages of Peer-to-Peer Payments

Meanwhile, you may be required to maintain a balance in your P2P money transfer app, and if by mistake you send the money to the wrong user, your money might not be retrieved back. Another disadvantage is that only single-currency transactions can take place. Some P2P transfers can take up to 3 days.

Conclusion

The peer-to-peer payment system is easy to use, convenient method of carrying out transactions. It is safe and ensures faster transaction speed. Nonetheless, the user’s discretion is required when it comes to sending money online, as your personal details are attached to your account that can be used for scamming you. Going cashless is an effective trend being followed worldwide. Different peer-to-peer payment systems provide different services like fund transfer time, charges for transactions, and even balance requirements. Before choosing a P2P payment system, look into the services provided by the application to cater to your needs.

Frequently Asked Questions (FAQs)

1. What’s an Example of a P2P Payment?

A P2P or peer-to-peer payment allows you to transfer or receive money through mobile or the internet. Some very famous examples of P2P payment systems are PayPal, Google Wallet, Snapcash, Bitcoin, and Venmo. Apart from these, there are Zelle and Cash App, too which are widely used money transfer apps.

2. Are PayPal Payments Peer-to-Peer?

PayPal is a very popular peer-to-peer payment system that offers safe, secure, faster, and convenient options for transferring and receiving money. PayPal is one of the largest payment platforms in the world. A lot of big companies and online stores allow their customers to buy goods and services from them by paying through PayPal.

3. What is Peer-to-Peer on Cash App?

Cash App utilizes peer-to-peer payment methods to facilitate easier and safer transfer and receipt of payments using multiple safety measures. Cash App enables users to transfer money anytime and anywhere using their smart devices or through the internet. Any activity on the Cash App concerning your account is notified to you via messages or emails.

4. How the P2P Payment Process Typically Works?

Provided that both the involved parties in a transaction using a peer-to-peer payment system have set up their accounts, transferring money is quite easy. Select the person you want to send money to, enter the amount to be transacted, add a note about the transaction if you want, then submit the payment, and it is done.

5. What are P2P Payments Used for?

Peer-to-peer payment systems are used to exchange funds directly between users’ bank accounts; they are usually based upon smartphones that are linked to your bank account, but some might also work on a desktop. Some popular peer-to-peer payment systems would include Google Pay, Paypal, Venmo, UPI, Zelle, and more.

6. How Fast are P2P Payments?

Most peer-to-peer transfers happen instantly, as long as you are exchanging funds with another user on the same platform or network. If you are transferring payment to someone outside of your chosen platform and directly to their bank account, it might take anywhere between one to three business days to process.

Disclaimers: Opinions expressed in this publication are those of the author(s). They do not necessarily purport to reflect the opinions or views of Shardeum Foundation.

About the Author: Anuska is an independent freelance writer freshly exploring web3 and blockchain space. Her articles blend personal exploration with established editorial methods, and she’d love to hear your thoughts in the comments!