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P2P Payment Systems: What You Need to Know

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Peer-to-peer (P2P) payment systems are changing the way we handle our money.

It’s easier than ever to pay back friends and family on your mobile phone.

First popularized by PayPal, the world of P2P payment systems has exploded, with mobile transactions projected to hit nearly $400 billion in 2020. Venmo, which is owned by PayPal, even upped the ante by rolling out a cash-back program in October. 

Many financial institutions offer the option of P2P payments between members, and multiple social media platforms now let you transfer money between friends and family, as well. In fact, you may already use a P2P payment system called PayPal SendMoney within the SELCO app. SELCO members can also use popular apps like Venmo, PayPal, Apple Pay Cash, Samsung Pay, Google Pay, and Cash App to quickly and safely send money. 

How do P2P payments work?

Say you’re dining out with friends and the restaurant only allows one credit card to be used per table. You offer to cover the tab, and in turn your friends can instantly transfer their portion directly to you.

By using a P2P payment app to send you money, the transaction is completed in a matter of seconds. Once you receive the funds, you can leave them in your P2P account to use next time or move the money out of the system and into your linked account (typically a checking account).

How long do money transfers take?

Transfers between you and your friends are instantaneous, with funds available right away. Transferring funds to your financial institution takes a little longer, typically 1-3 business days to clear. If you really need that transfer to clear your account immediately (like if you need to pay rent or a utility bill and you split the bill with your roommate), most providers allow you to pay a small fee to make that happen.

Transfers between you and your friends are instantaneous. 

Are there other fees associated with transfers?

Generally, P2P systems allow you to make a payment from a debit card, linked checking account or directly into the P2P account at no cost. However, several providers may take a small percentage of any payment made with a credit card. (Others, such as Apple Pay, don’t allow credit-card payments.) Also, if you want to transfer funds immediately into your checking account, you’ll usually have to pay.

Are P2P payments safe?

P2P systems are careful to encrypt your financial information and to use security measures for protecting your funds. However, as with all security measures, they aren’t foolproof. Many P2P systems have been targeted by hackers and scammers. You can keep your money safe and still enjoy the convenience of P2P apps with these safety tips:

  • Use two-factor authentication and a PIN before completing each transaction.
  • Set up notifications in your phone’s settings to be alerted about every transaction.
  • Only send money to people you know and trust.
  • Triple-check your recipient’s information before you send a payment—a mistyped email address or phone number could send your money to the wrong person.
  • Carefully read the terms and conditions of a P2P service before using.

If something goes wrong with a P2P payment, who is responsible?

Unfortunately, victims of P2P scams and accidental payments are most likely on their own. Most P2P services will offer their assistance to law enforcement agencies and notify users if they’ve been scammed, but that’s usually the extent of their fraud protection.

If you use your P2P payment service for business-related transfers, fraud protection is further limited. P2P services were created to be a means of transferring funds from friend to friend; most services clearly state in their policies that their platforms should not be used in business transactions. Many consumers, though, choose to ignore these warnings and use a P2P service to pay for goods they bought on Craigslist, to sell a used item, or even to accept funds for a service they provided.

If these rules are disregarded, the service will likely offer no fraud protection or assistance in reclaiming lost funds. Many of them will not even honor a business transaction at all. Therefore, it’s wise to practice caution when transferring money online or by app.

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