Peer-to-Peer (P2P) Payments: What You Need to Know

Peer-to-Peer or Person-to-Person or (P2P) payments enable consumers to send, receive, or request a payment to or from another person.  They are most frequently used for small payments, such as sharing the cost of a restaurant bill, sending a cash gift, or paying a babysitter.  Some people predict that P2P will replace cash and check payments by the end of the decade.

P2P services are generally intended for the transfer of money from one person to another person that you already know.  Most P2P services cannot be used for commercial purposes, although some can be used to make payments to merchants who have chosen to accept P2P payments.

Opening a P2P account generally requires you to establish a payment source.  This could be a bank or credit union deposit (checking or savings) account, a credit card, or a prepaid card.  Funds used to pay people will be taken out of the source account.  Some P2P services will hold your funds within your P2P account itself (stored value or digital wallet), rather than accessing your money from an external source each time that you make a payment.

When you want to send money to someone, you'll need to provide the P2P service with the recipient's email address or mobile phone number.  To obtain money, recipients generally need to provide their bank account information to the sender's P2P provider.

P2P services are often accessed through a smartphone app, but many can also be used through your computer.

Venmo, PayPal, Square Cash, Google Wallet, and Facebook all offer P2P services.  Zelle is a unified P2P service sponsored by more than 30 U.S. banks and credit unions.

There are a number of things to consider when using a P2P app:

  • Understand the P2P service's privacy policy.  It should explain how your personal information (and that of your recipients) is used and shared.  Find out if information about your transactions will be shared with other users, such as your social media friends. Set any available privacy settings to the most restrictive settings to avoid oversharing.  Remember that privacy policies and settings may change, so periodically re-check them.
  • Avoid making payments to people you don’t know, particularly for selling or buying things from strangers.  A buyer/scammer can often cancel a P2P transfer after receiving the goods but before the money is taken out of their account.
  • Learn how the P2P service handles disputes and complaints.  For example, what happens if the service pays the wrong person or the wrong amount?  If the funds are withdrawn from a bank or credit card account, you will have certain rights under federal law.  But if the funds are held in a stored value account with the payment service, you may not have any rights beyond those set forth in the service’s terms and conditions.
  • Consider the benefits of using a bank sponsored P2P service, rather than a non-bank service.  Your funds will be protected by federal deposit insurance while they are in a bank or a federal credit union.  Funds sitting in non-bank P2P service may not have this protection.
  • Be aware of any possible costs or fees, such as a fee to send or receive payments.  Generally, you can make P2P payments from a linked bank account or from the P2P account for free.  Some providers charge fees to process payments from a credit or debit card.
  • Make sure that the P2P service is set up to send you an email or text message any time there’s a transaction on your account.
  • If using the P2P service for business purposes, rather than personal payments, make certain that the service allows commercial payments.
  • Recognize that transferred funds may not be immediately available.  This could depend upon the particular P2P service and the receiving financial institution.

P2P is just one of many ways to pay.  Payment methods are constantly evolving.  To learn about the many other ways to pay for goods and services, read our Consumer Guide Privacy When You Pay: Debit, Credit, Cash and More.