6 Min Read | Published: August 30, 2024
What Are P2P Payments?
A P2P payment involves sending or receiving money via a third-party digital platform. They offer convenience but may carry a level of risk as well.
This article contains general information and is not intended to provide information that is specific to American Express products and services. Similar products and services offered by different companies will have different features and you should always read about product details before acquiring any financial product.
At-A-Glance
With peer-to-peer (P2P) payments, you can send or receive money via a digital platform through a linked bank account, debit card, or credit card.
P2P payments are fast, simple, and convenient.
While they offer a great deal of convenience, there are some risks involved with P2P payments as well.
Peer-to-peer (P2P) payments allow the transfer of funds between two parties electronically, eliminating the need for traditional methods like cash or wire transfers. It’s no surprise that they’ve increased in popularity in recent years as they offer a fast and convenient way to transfer funds. However, there are some risks involved when making P2P payments as well. In this article, we’ll uncover how P2P payments work, their benefits, and potential risks.
What Are P2P Payments?
With a P2P payment, you can send or receive money via a digital platform through a linked bank account, debit card, or credit card. While some P2P payment services have apps you can download and use, others require you to complete the transaction through your bank, credit union, or other financial institution. During a P2P transaction, both the sender’s and recipient’s banking details are kept private.2
How Does P2P Work?
When you sign up for a P2P payment service, you’ll be asked to connect your bank account (or card), often through a mobile app or your banking institution. Once you do, you’ll be able to transfer money directly from your account to another user’s P2P account. In most cases, the funds will be deposited into the recipient’s account automatically. Sometimes, however, you may have to go through additional steps to complete the transfer.3
Are P2P Payments Safe?
While P2P payments make it a breeze to send and receive money, there are a few risks associated with them. Since it can be difficult to cancel transactions, fraudsters may prefer to use them when requesting victims to transfer funds. Unfortunately, consumers may also be held responsible for mistakes, such as sending money to a scammer.4 For this reason, it’s a good idea to only send funds to people you know personally, and trust. It’s also wise to verify that the person you’re speaking to is your friend or family member, not a fraudster who’s impersonating them.
To increase the safety of P2P payments, use payment protection, you can link your credit card instead of your bank account so that unauthorized transactions can be disputed. You may also want to turn on multifactor authentication, set up alerts, and confirm the recipient and amount again before sending.5
What to Use P2P Payments For?
There are a number of scenarios where you may want to use P2P payments. Maybe you want to send money to a family member. Or perhaps you’d like to reimburse a friend for your portion of a purchase.6 Keep in mind that the terms and conditions for most apps prohibit their use for purchasing goods and services.7
How Much Do P2P Payments Cost?
P2P payment services are usually free to use. However, you may have to pay fees in certain situations. If you opt for an instant transfer instead of a standard transfer that will take longer to process, for example, you might be charged an instant transfer fee. Also, if you use a credit or debit card instead of a bank account, you may also pay a fee. In addition, foreign exchange fees may apply for international transfers.8
Benefits of P2P Payments
The main benefit of P2P payments is that they offer convenience. Here’s a look at some of the benefits and how they break down:
- Convenience
As long as they use the same P2P payment service, you can send money to just about anyone, no matter where they’re located. You don’t have to deal with the hassle of cash, checks, or wire transfers.9
- Ease of Use
Most P2P payment services are easy to use. You’ll be able to send and receive funds in just a few simple steps.10
- Speed
Typically, you’ll be able to send and receive funds quickly. Often, funds begin processing instantly or within just a few minutes.11
Drawbacks of P2P Payments
Here’s a look at the downsides of P2P payment services:
- Risk of Scams
Scams are not uncommon with P2P payment services. This form of payment is often preferred by criminals, who may pose as someone that you know requesting money. Because these payment platforms will typically not issue refunds, it’s important to verify that you know the party that you’re sending funds to and verify that the person who is requesting payment is really who they claim to be.
- May Send Money to the Wrong Person
You may transfer funds to the wrong person. This may happen if you mistype the user’s username or phone number.12
- Potential Fees
Some P2P payment services charge fees. You may pay fees for instant transfers, card fees, and international transfer fees.13
Did you know?
Most P2P payment services won’t let you cancel a payment after it’s been sent so it’s important to be careful when you use them and double-check that the information is correct and going to the right party.14
Frequently Asked Questions
If you want to avoid using a P2P payment service, you may be able to use online bill pay, write a check, or purchase a money order. Another option is to make a direct wire transfer.15
In general, P2P payments can go through in as little as a few seconds. But they may also take a few business days. However, with some P2P apps, you may be able to send or receive funds instantly in exchange for an instant transfer fee.16
A P2P payment won’t have a direct impact on your credit. However, if you link a credit card and the P2P payments raise your credit card balance, then this could, in turn, affect your credit.17
The Takeaway
P2P (or peer-to-peer) payments are digital transactions between two parties. While they’re simple, fast, and convenient, they also carry risks. It’s advisable to only use them to send money to trusted friends and family members, and to remember that you may not be entitled to a refund if the money gets sent to the wrong person, or a scammer, by mistake.
1,3,4,8,13,15,16 “What Are Peer-to-Peer Payments?,” Bankrate
2,9,10,11,12,14,17 “What Are Peer-to-Peer Payments?,” CNN
6 “Is It Safe to Use Peer-to-Peer Payments?,” Experian
5,7 “Do This One Thing to Protect Your Peer-to-Peer Payments,” Consumer Reports
Anna Baluch is a personal finance writer from Cleveland, OH. She enjoys helping people from all walks of life make smart financial decisions. Her work can be seen on Credit Karma, Forbes, LendingTree, Insurify, and many other publications. Connect with Anna on LinkedIn.
All Credit Intel content is written by freelance authors and commissioned and paid for by American Express.
Related Articles
What Are ACH Payments and Transactions?
Automatic Clearing House (ACH) payments and transactions offer some advantages, but they have their downsides as well. See how ACH payments work.
Do I Have to Pay My Credit Card in Full Every Month?
Paying your card balance in full keeps interest and debt at bay, but choosing to pay over time can afford financial flexibility when paying off major purchases.
How and When to Pay Your Credit Card Bill
It’s important to pay your credit card bill in full—and on time—each month. Avoid fees, and optimize your credit score, Here’s what you need to know.
The material made available for you on this website, Credit Intel, is for informational purposes only and intended for U.S. residents and is not intended to provide legal, tax or financial advice. If you have questions, please consult your own professional legal, tax and financial advisors.