April 2018: Peer-to-Peer Payment Apps
Rent a house, communicate with friends, check your email, take photos; what do all of these items have in common? They can all be done from a smartphone. Smartphones have helped us become more efficient with our daily lives through a number of ways. One of the ways our smartphones are increasingly helping our daily lives, is by providing us with a way to transfer money to others. Before smartphones, in order to provide someone with money you had to give them cash, check or even wire them the funds. Because of the smartphone, transferring money through cash and check is becoming the way of the stone-age. Today, you can now use your smartphone to log on to an app that is electronically connected to your bank account and transfer money to someone else through the app.
Peer-to-Peer (P2P) payment technologies are seeing exponential growth, especially with the younger generations. Peer-to-Peer payment means, transferring money directly to other individuals through an application. There is no intermediary, like a bank to approve of the transfer. This also refers to payments strictly with other people, not like the payments you send to businesses for their products or services. There are a few major players in this industry, each with their own positive and negatives, which will be discussed later. Most of these apps work the same way: You must create an account with the app, connect it to your bank account and make sure the person you are sending/receiving funds also has an account with the app. A majority of the apps will allow you to send cash to others free of charge, they typically will charge you when you use a credit card to send funds rather than cash. Some of the apps will allow an individual to use a proprietary debit card provided by the app.
We’ve also created a chart that shows the differences between the popular apps, you can check it out here.
Each app has its own negatives, whether it be fees or added risk. In weighing your options, you may consider who you are transacting with before choosing which app to use. If you’re going to transfer money to an individual you do not know, you may want to use PayPal. PayPal has the best fraud prevention tools and will help if you are taken advantage of. For example, if you were buying concert tickets from a stranger online and the stranger decided not to send you the tickets, PayPal would step in and freeze the funds. In addition, PayPal will help in other ways to ensure the consumer was properly taken care of. Most of these other apps would not help their customers in these types of situations, as of yet. If you are transferring money to friends or family, we recommend using Zelle. Zelle was developed by an alliance of the major banks to create their own safe P2P network for their customer bases to use together. Zelle has no fees, allows direct transfers between bank accounts and the funds sit in your bank account so they’re FDIC insured. For those of you that use Chase’s QuickPay, it is just an extension of that, except it now includes a network of banks. Because Zelle is an extension of your banking app (assuming your bank is a participant) there is no processing time to move your funds to/from a P2P app. Instead of transferring your funds to a third-party app, you are transferring your funds to the other individual directly from your bank account. Because payments are processed directly from your bank account, you may want to use Zelle only for transferring funds with family and friends.
Please let us know if you have any further questions concerning this topic. Thank you for reading.