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What Are Peer-to-Peer Payments?

3 min read

Last Updated: December 12, 2024

Table of contents

Key Takeaways

Peer-to-peer payments (P2P payments) are one way to send and receive money quickly.
P2P payment services, either on a website or mobile app, link the platform to your bank account, credit card, or debit card.
P2P payment services can be free to use, but some types of transactions may have a fee.

Peer-to-peer payments, or P2P payments, are transactions used for anything from splitting a dinner bill between friends to paying your rent. These payments allow the transfer of funds between two parties using individual banking accounts, credit cards, or debit cards through a website platform or mobile app.

The most common peer-to-peer apps include: Cash App, PayPal, Venmo, and Zelle^®.

How P2P payments work

Peer-to-peer payment accounts are typically relatively simple to set up. For whichever P2P payment app you choose, you’ll:

Sign up for an account
Link your account to your bank account, your credit card, or your debit card
Some apps might require further verification to increase security
After your account is set up, you can find other users by their username, email, or phone number

Once your account is set up, initiating a money transfer usually just takes a couple clicks. You choose to whom you’re sending money, the transaction amount, a reason for payment, and finally submit.

Depending on the P2P payment app, a money transfer may be instant or take a few business days.

Many applications keep the money stored in the app until you manually release the funds into your personal banking account. Typically, this is a free service if you wait a few days for the transaction to process, but some P2P service providers may allow you to transfer the money instantly to your bank account for a small fee.

Some P2P payment services charge a flat fee or low-percentage fee for a regular P2P transaction, while other providers do allow for fee-free payment. Look to see if they charge an extra transaction fee if you use a credit card instead of a bank or debit card.

Research the providers to see what, if any, fees are associated with making a financial transaction.

Peer-to-peer payment benefits

Peer-to-peer payments are all about ease of use, convenience, and speed. Once you have the P2P payment service app installed on your phone, you can typically send instant payments to friends or merchants.

Did you know?

Most P2P transfer services allow you to request payment from other users. So, if you’re out for dinner with friends, you could use a rewards credit card to pay the tab and request their portion using your P2P platform. That way, you can enjoy credit card rewards from your restaurant purchase.

Security risks of P2P payments

While for the most part a peer-to-peer payment system is secure, there are risks when sending money online. Whether you accidentally send money to the wrong user, or you risk becoming the victim of a scam or data breach, issues can arise.

Many P2P payment providers use precautions to lower security risks—from passwords and PINs to transaction notifications that confirm whether users did indeed send money.

To lower the risk of being a victim of fraud, only conduct digital payments with people you know. Read up on the type of fraud monitoring your P2P payment provider uses, and research the quality of the financial institution’s customer support network.

It’s important to consider the risks that come with P2P payment systems. But if you take the proper precautions, they shouldn’t necessarily stop you from using this easy way to transfer money.

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