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Peer-to-peer (P2P) payment platforms have evolved from a way to quickly pay friends or family members to a new type of payment you can use with a wide variety of merchants. Whether you're buying a loaf of bread at a farmer's market or making an online purchase, your P2P account could replace your cash and cards.
How Do P2P Payments Work?
There are several popular P2P payment apps and services, including Cash App, Google Pay, PayPal, Venmo and Zelle. About 70% of people had used at least one P2P service by the end of 2020, according to the Mercator Advisory Group. However, most people don't use more than one app and many don't regularly use any P2P apps.
The platforms all work a little differently, but the basics are often similar. To use one of these services for P2P payments, you'll need to:
- Create an account. You may be able to use your email, phone number or a linked social media account to get started.
- Connect a funding source. This can be a bank account, debit card or credit card. There's generally a fee if you want to use a credit card.
- Send a payment. You may be able to use a person or business's username, phone number, email address or a QR code to send them a payment. Some online stores also let you pay for purchases with your P2P account.
You can also use your account to receive payments. You can usually opt to leave your money in your P2P account or transfer it to linked debit cards and bank accounts. Transfers may take several days, but many apps will instantly transfer funds to eligible linked accounts for a fee.
Are P2P Payments Safe?
In general, sending someone a P2P payment is safe in the sense that they will receive the money and the transactions are encrypted. And because the apps often allow you to make real-time payments, the other person can tell you right away if the payment didn't go through.
However, they're potentially unsafe in the sense that scammers often use P2P apps, and if you send a scammer a payment, you won't necessarily be able to get the money back.
For example, several popular services warn users about common scams on their help pages. These include phishing attempts from people pretending to work for the P2P company and smishing texts that will send you to websites that the scammers control. In both cases, the scammers may try to get you to share your login information, which they can then use to get into your account and transfer money to themselves.
If you're selling an item, scammers may connect stolen credit card or bank information to a P2P app when sending you a payment. You might provide them with the item, receive an instant payment and think everything is OK. However, the money could be taken out of your account (potentially leaving you with a negative balance) once the fraud is reported by the credit card's rightful owner.
A few P2P apps, such as PayPal and Venmo (which PayPal owns), offer purchase protection. The seller has to pay a small fee for the service, but the protection can help both parties if the other person claims there's an issue.
Pros and Cons of Using P2P Payments
While P2P apps are popular payment methods, they're not the best fit for every situation. Consider some of the general pros and cons before signing up for a new app:
- Can be more convenient than carrying and paying with cash
- Allow you to send and receive instant payments
- May offer additional features, such as the ability to buy stocks or cryptocurrencies
- May not offer a refund if you fall victim to a scam or accidentally send money to the wrong person
- May charge a fee for paying with a linked credit card or withdrawing money with an instant transfer
- Fewer protections compared with paying with a credit card
Popular P2P Payment Apps
You've likely heard of or tried a P2P app before, but they can all be a little different. Here's a quick look at how several of the most popular P2P apps differentiate themselves:
Block (formerly Square) runs Cash App, which you can use to send and receive money with a phone number, email address or "$cashtag." The app also goes beyond P2P payments with additional optional services, such as a linked debit card (with cash back offers) and commission-free investing.
PayPal owns Venmo, but runs it separately from the PayPal P2P service. One of the main differentiators for consumers is that Venmo emphasizes the social element of payments by allowing people to add messages and emojis to their payments. While the app no longer has a global feed of ongoing transactions, you can still see anyone's transaction history unless they've marked the transaction as friends-only or private.
Early Warning Services, which is owned by some of the largest banks in the country, runs Zelle. The service is different from other P2P payment apps in that you won't have a Zelle account with a balance. Instead, it's primarily a way to send near-instant transfers between accounts at credit unions and banks that are part of the Zelle network. But you can also use the Zelle app, even if your bank or credit union isn't part of the network.
Do P2P Payments Affect Your Credit?
Sending and receiving payments with a P2P app won't directly impact your credit report or score. However, if you linked a credit card to an app, then your P2P payments could increase your credit card balance. In turn, this could hurt your credit scores if it increases your credit utilization ratio or if you miss a credit card payment.
Additionally, while the P2P account won't be part of your credit report, your account could be sent to collections (which might appear in your credit report) if you have a negative balance. If you want to check your credit, you can get a copy of your Experian credit report for free. Experian also gives you access to a FICO® Score☉ and free credit monitoring with alerts for important or suspicious changes.