What Are P2P Payments and How Do They Work?

Peer-to-peer payments are a method of sending money from one person to another. Such payments — made through money transfer platforms such as Venmo, Paypal, Zelle and Cash App — are an increasingly popular way to transfer funds digitally. The P2P industry, in fact, is projected to grow from $2.95 billion in 2023 to $3.4 billion in 2024.

Here’s what you need to know about P2P payments and how they function.

How do P2P payments work?

You’ll find many P2P payment solutions, and they all work the same way. Here’s an overview of the general process of making a P2P payment:

• Choose a P2P payment platform. To get started, select your preferred P2P payment platform. (More on that below.) Download the mobile app or navigate to the website and create an account.
• Connect a funding source. Next, connect a bank account or credit card to your account so you can start sending and receiving funds.
• Understand limits and fees. P2P payment platforms are typically free to use, but fees may be attached. For example, most payment apps charge a 3% transaction fee for using a credit card. Also, limits may apply to the amount you can transfer.
• Select a recipient. You can usually find your recipient in the app by entering the username, phone number or email address associated with the account. However, verify the recipient’s information to avoid sending money to the wrong person.
• Send or request the funds. Specify the payment amount and complete the transaction to transfer the funds. You may also be able to select a recipient and enter an amount.
• Transfer funds to your account. If you’ve received money, you can withdraw it from the platform by transferring it to your bank account. Most platforms have an instant transfer option, though this may come with a fee. With a standard transfer, the funds will typically arrive in your bank account in a few days.

Who offers P2P payments?

Because most P2P payment platforms function similarly, choosing the best option for you will likely be a matter of finding the most widely used option in your network. Choosing an application that’s popular among your family members and friends will make it easier to complete transactions.

Still, here’s a look at some of the features that set each service apart.

Pros and cons of P2P payment systems

Peer-to-peer payment is a solid option in many situations, but it’s not without downsides. Here are some of the biggest pros and cons of P2P payments:

Are P2P payments safe?

The consensus on P2P payments is that they are fairly safe. However, there are a few risks to keep in mind.

First, most apps don’t allow you to cancel a payment or refund your money. This can be a problem if you accidentally send a payment to the wrong person.

Additionally, the Federal Trade Commission (FTC) reports that scammers are increasingly turning toward P2P services. The organization warns that criminals may pose as a loved one needing emergency funding or a sweepstakes company offering you prize money.

Tips to transfer money safely on a P2P platform

Here is some advice to help ensure you can keep your P2P account safe:

• Sign up for transaction notifications. These services can alert you each time you send or receive money, so make sure settings are turned on. This way, you’ll know immediately if someone uses your account without your permission.
• Maximize your login security. Most apps will let you create a PIN — similar to what’s used with a debit card — that is required every time you want to send or deposit money. If you’re using the service on your phone, you can also set the app to require facial recognition before giving you access.
• Double-check the recipient’s contact information. Verify that your money is going to the right place by making sure that you have the correct contact information for your recipient.
• Verify unsolicited requests before sending money. If you get an unexpected payment request from a friend or loved one, contact that person to ensure it’s real before sending any money.