“How Will You Be Paying?”: A Look at P2P Payments

As methods of payment continue to evolve, they have become varied across demographics. While few consumers carry significant amounts of cash, and even fewer write checks, more and more are using a growing number of non-cash alternatives to pay for products and services.
Credit and debit cards are generally the most widely-accepted forms of cashless payments, and most people have at least one card in their wallet. In recent years, person-to-person, or peer-to-peer (P2P) payments have evolved as an increasingly significant way to transact.
P2P payments are electronic transfers of funds made between individuals or between an individual and a merchant. These payments are made using a P2P mobile app or website, and funding sources vary across P2P options.

What is Driving Digital P2P Payments?

In the ever-expanding digital world, payment methods are changing quickly and several factors are driving acceptance.

  • Younger, tech-savvy consumers are driving much of the utilization of P2P payment applications. They are typically more familiar and comfortable using mobile applications for day-to-day activities, including payments to others. From splitting a restaurant check to paying back the $20 they borrowed from their roommate last week, they expect the convenience that these new applications and services provide. Carrying cash, or a checkbook, is less likely to occur with this generation of consumers.
  • Speed and convenience make P2P solutions an attractive option. If you didn’t have time to hit the ATM, you can easily send money through an app or website from the convenience of wherever you are. Payments can be sent and processed in one day, and most situations require that immediate response, such as splitting a check or a sending payment to a friend.

The Options are Many

P2P payment applications can generally be categorized in 3 ways: standalone, bank-based or social media-based applications.
Standalone applications do no rely on a bank or financial institution for handling the payment. They allow users to store money in a “wallet” before sending it to a bank account or sending it to another user.
Bank-Based applications utilize an established account within that bank to transact. Users configure the application to draw funds directly from their bank account, and funds received from others are deposited directly into the account as well.
Social Media-Based applications provide another P2P payment option by offering the ability for payment through their mobile applications. Users can send and receive money from other members/users of the social media application. Payments are typically made via a linked debit card.

Considering your Options: The Selection Criteria

When selecting a P2P payment application, consumer choices are many but there are factors to consider when making a decision:

  • Funding Source
  • Transaction Fees
  • Security

Consumers may fund their P2P transactions using a credit or debit card, linking directly to a bank account or storing money in an account that is tied to the application. As with any transaction, you should be diligent in monitoring the specified account to ensure that the proper amounts are being deducted, or credited, to your account.
Transaction fees may be assessed when you link your payments to a credit or debit card or you may be charged a flat fee per transaction. However, if your app is linked to a bank account, you are unlikely to encounter fees. You should always read the fine print before selecting a P2P app or provider and understand the potential costs associated with each.
Security remains paramount when selecting a P2P provider or service. The level of security varies among vendors, so you need to review how each aim to protect your payment and personal data:

  • PCI compliance
  • Data encryption
  • Passwords/passcodes
  • Biometrics
  • 2-factor authorization
  • PIN

With the number of providers increasing regularly, consumers need to remain diligent in protecting themselves.

Where Does This Lead?

Having the ability to pay whenever, and wherever, will continue to drive P2P payments. The best app is the one that meets your needs as a consumer for simplicity, security and cost-effectiveness. The P2P landscape will remain fluid and users will shift from one application to another when something “better” comes along.
P2P success relies on creating a better way for people to pay one another. Whether it be via a standalone mobile app, your favorite social media platform or your bank, the industry is driven to simplify payments and the transfer of funds between users.
The banking industry is realizing the opportunity of this platform and appears poised to try and engage further with these digital consumers, or risk losing them. Payment providers and social media platforms will continue to evolve their solutions. Consumers will continue to have numerous choices and need to decide what works best for them. The market will continue to grow, and payments will simplify in this industry.
So, how will you be paying?
Questions or comments? contact Jim Friel at [email protected]

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