New products, Protecting yourself

When did P2P payments become so ubiquitous?

Mike Cetera

You know something has crossed into the mainstream when it becomes common among middle-aged folks living in suburbia.

One day I paid for things exclusively with debit or credit cards (or on exceptionally rare occasions, cash) and seemingly the next I began paying for my kid’s weekly batting cage session using a peer-to-peer payment service.

Earlier this month, a Boy Scout urged me to buy a coupon book he was selling as part of a fundraiser. When I explained I wasn’t carrying cash, he told me I could send his mother a payment via PayPal instead.

Exploding payments growth

If your payments experience is similar, it’s no wonder. Data from Statista shows the number of adult P2P users in the United States jumped from 45.5 million in 2016 to 78.7 million this year.

By 2020, more than one in three U.S. adults will access mobile peer-to-peer payment apps.

This shift makes sense to me in a way that mobile payments at checkout never have. Unlike mobile wallets, P2P payments actually solve a problem (what to do when you don’t have cash) – or at least make payments between friends and family more convenient.

Here’s how P2P works, in general: First, you link your bank account or a credit card to a peer-to-peer payment platform. Then you can authorize payments to another person who has an account on the same platform. The P2P network acts as a middleman, moving the funds from you to your friend’s or family member’s P2P account.

A voice-activated P2P?

The growth of P2P payments may further accelerate if Amazon decides to offer its own peer-to-peer payments  platform. The Wall Street Journal reported in April the online retail giant is considering adding a peer-to-peer feature to its virtual assistant, Alexa.

“Though details are scarce, such a service would ostensibly allow customers to give Alexa access to bank account or card information, and then prompt the voice assistant to send funds via those offerings to another, likely pre-authorized, user,” according to Business Insider.

“If the tool is like services from peers, users would have to authorize the payment on their phone or other device before it could be completed.”

P2P from A (Alexa?) to Zelle

To be sure, this would catch on quickly in my house, particularly if transferring cash is as easy as saying, “Alexa, pay $10 for batting practice.”

For now, the dominant players are PayPal and, perhaps surprisingly, your bank. New research from the Aite Group found that among U.S. consumers who made a mobile P2P payment in 2017, 56 percent used PayPal and 55 percent made a payment via “mobile banking.”

Banks made it considerably easier to transfer money to another person with the 2017 launch of Zelle, a payments network supported by more than 60 financial institutions.

Again, the beauty of this P2P platform is its seamlessness. Zelle, for example, is embedded as a feature in the app for Chase, where I hold my checking account. I can send a payment to virtually anyone – even if they don’t have an account with Chase.

How to protect yourself when making P2P payments

Like with any financial transaction, you should protect yourself from the risk of fraud and loss of money. Here are four must-dos:

1. Use a PIN or set up fingerprint identification.

The big P2P players include these options when setting up your account. Don’t let a payments transfer occur without first enabling this security measure.

2. Turn on payment notifications.

Ask for a text or email notification whenever a transaction occurs.

3. Do not store money with the P2P service.

Have money withdrawn directly from your bank account or charged to your credit card. The FDIC warns that you may not enjoy the same legal protections you have with your bank (like deposit insurance banks hold in case they fail) if you keep money in a non-bank P2P account.

4. Watch for fees.

Some services will charge you when you make a payment. Others will charge you based on the kind of payment you request. PayPal, for example, offers free transactions when you make a payment withdrawing funds from your PayPal account balance or your bank account, but charges 2.9 percent of the transaction amount (plus a 30-cent fee) when you send money using a debit or credit card.

Finally, be wary about using these services with anyone other than friends or family. The website NextAdvisor warns against sending – or even receiving – payments involving people you don’t know because of the potential for fraud. Some of these services have limited buyer or seller protection measures in place.

See related: Facebook, Snapchat for transferring funds? Maybe, 6 reasons to stop using cash and start using credit cards

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