What are peer to peer (P2P) payments?

P2P services enable fund transfers between people with separate bank accounts via a third-party website or digital app.

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If you’ve ever needed to pay someone back for a coffee, cover your rent and other utilities, or split a meal, you might be familiar with peer to peer (P2P) payment services.

P2P payment apps have emerged as a convenient alternative to cash payments, as they enable digital payments and money transfers between consumers in an easy and quick manner. Research from Visa shows that most (69%) global consumers today carry less cash due to the surging use of contactless and online payments, while over eight in ten (84%) consumers admit to having used a P2P service.

In this article, we delve in how P2P payments work, their popularity across the globe, as well as their advantages and disadvantages.

How do P2P payments work?

P2P systems facilitate money transfers between people typically through a website or mobile app. Popular digital apps, such as PayPal, Venmo and Zelle for example, aim to make the life of users easier by allowing them to send or receive money to and from another person’s bank account without an intermediator.

When users sign up for a P2P payment service, they’re required to create an account by providing contact details which, depending on the app, may involve name, email address, phone number and home address among others. Once registered, users need to fulfil KYC requirements – a process which includes proof of ID so to validate that the user is who they claim to be.

Then, users are expected to connect a personal bank account or payment debit/credit card to the service. Once logged in, transferring funds becomes a simple and hassle-free process that only takes a few clicks. When transferring money, users can search for family and friends by their contact details (i.e., email, phone number or username, depending on the payment service), but often people in a user’s contact list will appear automatically.

Once users are ready to make the P2P money transfer, they simply choose the recipient, the amount they’re sending, and then submit the payment. Depending on the service, a P2P payment can be completed in a few minutes to a couple of days. It should be noted that only consumers using the same P2P system can transfer funds among themselves. For example, a PayPal users cannot move or receive money from a Venmo user.

Are P2P payments safe?

Whereas P2P transactions are widely preferred for their speed and convenience, a recent PYMNTS study uncovered that the fraud rates of such payment apps have soared by 64% in the last 12 months. Because the funds being sent are available to the recipient almost instantly with little chance of getting the money back once it has been transferred, P2P platforms are more susceptible to online fraud.

In light of this, P2P platforms have increased their security measures against cybercrime. Besides encryption technology and warning signals like monitoring for unusual account activity, many P2P require two-factor authentication (2FA) security. PayPal's Authy app is an example of this where users receive a text with a code to verify who they are.

P2P payments used globally

Research by Acumen reveals that the P2P payment market size internationally accounted for US$1,872 billion in 2021, while it’s estimated to hit an astonishing market size of US$9,135 billion by 2030 – growing at a CAGR (2022-2030) of 19.7%. Preferred by a quarter (25%) of consumers worldwide, online bank transfers are the most prevalent P2P payment type. However, data from Statista shows that PayPal is also gaining ground in the P2P payment ecosystem. To illustrate, transactions processed via PayPal increased by over 15% in Q3 2022 when compared to Q3 2021.

On a regional level, Latin America has one of the largest market shares of P2P payments made via bank transfers. This includes the majority of consumers (92%) in Chile, accompanied by users in Peru (85%), Colombia (79%) and Argentina (79%).

Countries in the Asian territory also present a strong preference for P2P bank transfers, including India (81%), Indonesia (88%) and Australia (74%).

When it comes to age groups completing P2P transactions, a LendingTree report indicates that P2P transfers are carried out multiple times a week by more than a third (37%) of Gen Z consumers, with Millennials being close on their heels at 36%.

Advantages and disadvantages of P2P payments

Like any other payment method, P2P payments have various benefits as well as drawbacks.

Advantages of P2P payments

  • Easy and fast – Transferring funds with a P2P service to anyone in a user’s network normally takes minimum time and effort, as the information needed for completing the transaction is included in the app. This means that any future payments to the same user will require fewer details to be done.
  • Increased security – P2P transactions are encrypted and offer two-factor authentication (2FA), so it’s more challenging to commit any fraudulent activities.

Disadvantages of P2P payments

  • Fees and payment delays – Some P2P systems incur fees for transactions made with credit and debit cards. In addition to this, while users may receive a notification of their payment confirmation instantly, the funds may not reach their bank account for a few business days.
  • Difficulty in refunds – Since the P2P service acts as a middleman, the refund process may take up to 30 days while the funds will appear in the consumer's bank account balance after the monthly settlement carried out by their issuing bank.

Accepting P2P payments with emerchantpay

While P2P payment systems are known for their speed and ease, users should be wary of the costs, funds delivery times, and other factors such as having to top up a balance when choosing a P2P service.

With 20 years of experience in online payment processing, emerchantpay is committed to empowering our merchants to create a smooth and safe payment experience. Central to this is a checkout journey that’s adapted to the payment preferences of target customers, including P2P online bank transfers. Our global team is equipped with expert insights as well as fraud and risk management tools that can support you to make informed business decisions and boost your revenue.

Want to know more about how you can accept P2P payments seamlessly? Contact one of our payment experts today.

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