An arm with a smart watch paying at a restaurant with their watch.

What you should know about P2P (peer to peer) transactions

Tuesday, November 25, 2014

Do they have a place in your business?

When it comes to payment technology, one of the most popular technologies is peer to peer (P2P) payments. As their popularity has grown, so has the market for them. Especially with the rise of mobile banking and more control of our money on our mobile phones, peer to peer transactions have become second nature for many people of all ages. And their popularity continues to grow, thanks to their convenience and ease of use. So in this article, we’ll talk about peer to peer transactions. We'll look at what they are and how they work and discuss what is right for your business. First, let’s look at P2P payments and how they work.

What are P2P transactions and how do they work?

Peer to peer payment systems, at their base level, allow real-time money transfers back and forth between two people from their mobile devices through a linked bank account or credit card. Sometimes called person-to-person payments, these digital payment systems allow users to painlessly send money to friends and family without fumbling with cash or going through traditional payment methods. For many, it’s as easy as clicking a few buttons in a mobile app. The most popular P2P service providers are Venmo, Cash App, Square Cash, Zelle and PayPal. While some of these fintech services operate within their app, others can send money right in your banking app.

So how do these P2P payment services work? Let’s look at a common example to demonstrate the functionality of these apps—splitting bills.

Let’s say you’re out to dinner with six friends. When the bill comes, the restaurant you’re dining at is unwilling to split up the check. Instead of getting upset, you offer to pay on your debit card or credit card. Then, your friends all need to pay you for their meals. So they log in to a P2P app on their mobile phone (they need to be using the same app as you). Then, they find your username via phone number, email address, or QR code. They enter the payment amount in their app, and then send you money. That money shows up in your account on the P2P app. You’re then able to transfer the money from the app to your bank account at your financial institution (bank or credit union).

The entire process only takes a few minutes at most, making it much faster and more convenient than other ways to split the bill.

Now, you may wonder how much it costs to use these services. While each will have varying costs, the general rule of thumb is this: sending money from one linked bank account to another is free, while utilizing a credit card can come with a 2-3% transaction fee.

Another common question about P2P transactions is how long it takes to get the money once someone pays you on the app. When someone pays you on the app, it will immediately be in your account, and you can use the money to pay others in the same app. But, if you’re looking to transfer the money outside the app to your bank account, it can take 1-3 business days and sometimes longer. However, depending on the service you’re using, you may be able to get your money in your bank account sooner for a percentage fee.

Is using a P2P app safe?

For the most part, yes, P2P apps are safe to use. However, there are always risks when sending money online. For example, there’s no way to get your money back if you accidentally send a payment to the wrong user. Also, there’s the inherent risk of being the victim of a data hack or scam. While P2P payment providers have safeguards in place to help prevent these occurrences—like encryption, password and phone number protection, PINs, and confirmations—it’s important to consider the potential risks before utilizing P2P services.

One of the best ways to protect yourself is to only transact with people you know and trust. You should also have a firm understanding of the protections each P2P services provider has for you as the end user. Understanding how they’re protecting your identity and personal information is crucial. Another way you can ensure safe transactions is to make sure you set notifications whenever you send or receive money.

With any form of payment type, there are risks. But knowing the risks of a P2P payment app can help you make an informed decision as to whether or not you want to utilize this fast-growing and commonplace way to pay as a consumer. Now that you know about the safety of P2P transactions let’s look at using P2P transactions as a business.

Are P2P transactions right for my business?

When it comes to using P2P transactions for your business, it may seem like a no-brainer. However, there’s more than meets the eye. One of the key components in accepting payments as a business is logging and tracking transactions. Small businesses like yours need to track transactions and balance the books. Unfortunately, current P2P systems are not expressly designed for small businesses and lack many recordkeeping features that are necessary for business owners. All that to say, it isn’t easy to keep track of all your business’s transactions in the P2P app.

Another concern of P2P transactions for businesses is the amount of time it takes to get the money. It can take more than a few business days to get payments from your customers into your actual bank account. And while many providers advertise a way to get money instantly, these instant transfers cost a percentage of the transaction.

However, P2P transactions may suit side hustles and smaller businesses that can get by with manual record keeping. Just remember, P2P payments cannot be reversed, making it even more difficult for your business to issue refunds.

As you can see, P2P payments have their place in the payments ecosystem. While they provide an easy, tech-savvy way for friends and family to send money back and forth to one another, they also come with risks. Because they’re not set up for business use, there may be a better way to do business transactions on the go—like a mobile POS system. As always, it’s important for you to evaluate your specific business needs alongside the pros and cons of P2P payments to decide if P2P payments are right for your business.

Ready to work with a payment processor who can help you determine if P2P payments are right for your business?

Heartland is the point of sale, payments and payroll solution of choice for entrepreneurs that need human-centered technology to sell more, keep customers coming back and spend less time in the back office. Nearly 1,000,000 businesses trust us to guide them through market changes and technology challenges, so they can stay competitive and focus on building remarkable businesses instead of managing the daily grind. Learn more at