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Banking 101: What Are Peer-to-Peer (P2P) Payments?

Written by Dillon Thompson | Published on 9/18/2019

Note: This article is part of our Basic Banking series, designed to provide new savers with the key skills to save smarter.

Americans are carrying less cash than ever. A recent DepositAccounts study found that one in every three Americans would not be able to make a $20 cash purchase without visiting an ATM, and about 22% said they weren’t carrying any cash at all.

So what do cashless consumers do when they want to split the check at dinner, or pay their power bill without writing a check? That’s where peer-to-peer (P2P) payments come in. P2P payments are a type of digital transaction that allow for the transfer of funds between two people. These transactions are typically made through mobile apps — such as Venmo, Zelle or PayPal — that are linked directly to your bank account.

There are plenty of situations where they come in handy. As DepositAccounts founder Ken Tumin put it, P2P payments “make it easier to live without cash.” That can mean repaying your friend for coffee, setting up recurring rent payments or transferring money between bank accounts.

But how exactly does P2P work? Are there fees? And, most importantly, is it safe? Here’s everything you need to know about peer-to-peer payments.

In this article we will cover:

How P2P payments work

There are plenty of peer-to-peer services out there, but they basically all work the same way.

In general, you start by linking your funds to a service, either through a card or directly to your bank account. Most services will also ask you to provide some type of contact info — such as a phone number or email address — that lets you connect to other users and exchange money.

From there, transferring money is as easy as entering the contact info of your recipient, and then specifying the amount you want to send. Once the recipient gets the money, they have the option to keep the funds within the P2P service for future payments, or deposit the balance into their account.

Peer-to-peer payment services are often free to use, but there can be fees depending on the source of your funds or how quickly you need to access the money. For example, many P2P services will charge for an “instant transfer,” meaning if you want your money immediately, you’ll have to pay extra. Standard transfers typically take between one and four business days, depending on the service.

There may also be fees for using a credit card — typically about 3% of your transfer — or extra charges for people who use the service for business purposes.

In addition, there’s also usually a cap on how much money you can send at once. For example, Venmo lets users send $299.99 per week and receive $999.99 per week before verifying their identity through the app. Once your personal information is verified, those limits increase to $4,999.99 and $19,999.99, respectively.

Pros and cons of P2P payments

Peer-to-peer 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.

Pros Cons
  • You don’t have to worry about going to an ATM or carrying cash.
  • Services will log your payments so you can easily track your finances.
  • You can always pay the exact amount you owe.
  • Payments between different currencies will automatically convert.
  • You can request money from or pay multiple parties at once.
  • It can often be slower than paying with cash.
  • It’s more expensive if you have to pay any fees.
  • There are limits on how much you can send and receive.
  • You could accidentally send money to the wrong person.
  • There are some security concerns (more on that below).

What are some of my P2P payment options?

There are probably too many peer-to-peer services to count at this point, but you’ll usually come across the same few brands. Picking the right one comes down to how you want to make your payments and how you plan to fund your account.

Here’s a breakdown of four popular P2P services, including their biggest advantages and drawbacks.


Easily the oldest of the major peer-to-peer brands, PayPal has been offering money transfers since 1999. It’s also the country’s most popular P2P service: According to technographics company Datanyze, PayPal accounts for a 66% market share of payments made on American websites.

You can sign up for PayPal through its website, or by connecting with the PayPal app. Both methods are similar, and they will ask you for basic bank info as well as an email address to link with your account.

Standard transfers through PayPal are usually processed the next business day after a transaction is made — or users can pay a 1% instant transfer fee (maximum $10). There’s also a 2.9% fee for paying with a debit or credit card, as opposed to through your bank account, which is free.


Venmo, launched by two former college roommates in 2009, is a P2P app that connects to your bank account through your phone number. The company was actually bought by PayPal in 2013, but there are some distinct differences between the two services.

For one, Venmo users can make payments with a debit for free, in addition to directly through their bank account. Credit card payments, meanwhile, come with a 3% fee. Standard transfers with Venmo usually take between one to three days, or you can transfer instantly for a 1% fee (minimum $0.25; maximum $10).

Cash App

Square Cash App launched in 2013 and is one of many services offered by the payment processing company Square. The payment service works pretty similarly to Venmo — both are mobile, app-based products — but fees vary slightly.

Transferring money from Cash App to your bank account also takes between one to three days, and there’s a 1.5% instant transfer fee versus 1% for Venmo. There’s also a 3% fee for using a credit card.


Zelle is similar to PayPal, but with one major difference. The service, created in 2017, was launched with the direct backing and support of nearly all major U.S. banks.

Unlike many other P2P services, which are technically a third party between you and your bank, Zelle connects directly to your account. Users can enroll through their bank’s website or mobile app, which they can then use to send and receive payments.

There are no fees for instant transactions. However, if your recipient doesn’t have a Zelle account it might take up to three days to process the payment. Because it’s essentially part of your bank account, the service doesn’t charge fees for any type of transaction, though it does not allow credit card payments.

P2P payments: Are they safe?

The general consensus on P2P payments is that they are, for the most part, safe. However, there are a few risks to keep in mind.

First of all, most apps don’t have a way for you to renege on a payment. Tumin notes that this flaw can get users into trouble pretty easily.

“For instance, if you specified the wrong person to receive [a payment], and that other person just decides to keep it, getting that money back can be difficult,” Tumin said.

The same goes for fraudsters. A recent report by the National Consumers League found that scammers are increasingly turning toward P2P services, largely due to their convenience. The organization warned that criminals may pose as online businesses, then simply keep your money when you make a purchase.

That’s why it’s important to remember these simple tips when making a peer-to-peer payment. This list isn’t comprehensive, but it will help make your experience safer.

  • Sign up for transaction notifications: Essentially every service is capable of alerting you each time you send or receive money, so be sure that setting is turned on. This way, you’ll know immediately if someone is using your account without your permission.
  • Turn on your privacy settings: Some apps will automatically post your transactions, meaning other people can see how much you’ve sent and received. If you want to keep that info a secret, change the preferences in your account settings.
  • Maximize your login security: Most apps will let you create a PIN — similar to 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.

Security is a risk with any payment method, but as long as you keep safety in mind, P2P can be a great way to navigate America’s increasingly cashless culture. There are plenty of services out there, so knowing the advantages of each one will ensure that you get the most out of your peer-to-peer payments.

  |     |   Comment #1
Ummm. Where is digital crypto currencies on this list?

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