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Online Peer-to-Peer Payments: What You Need to Know

Posted by Jeff Pelliccio on Aug 23, 2017 9:00:00 AM

In ICS insights

Once upon a time, if a friend or family member needed cash quickly, the person lending the cash either needed to see them in person or send it via a professional funds transfer company like Western Union. As with most things regarding technology, things have changed with the increasing popularity of peer-to-peer (P2P) payments.  

One of the many advantages that peer-to-peer payments—also called person-to-person payments—over traditional funds transmissions is that there is no longer any need to get out of bed and travel to the local convenience grocery store to get emergency funds to someone in dire need.  

Previously a somewhat niche practice most beneficial to eBay regulars, P2P transactions are starting to reach the mainstream for everyday use. With companies like Apple set to support P2P payments with its iOS 11 update—along with many financial giants ready to make the splash to provide quick and easy cash—peer-to-peer funding is about to become a household term and practice.  

The smartphone has been one of the driving forces in the increased interest in P2P payment systems by the general public.  

Are P2P Payment Systems New?  

Peer-to-peer payment systems are not a new phenomenon. PayPal was the original P2P payment portal—established in 1998—set up to support eCommerce and individuals payments. These electronic payment transfers have proved invaluable for everyone from eCommerce giants to freelancers and small business owners who receive payment through PayPal and other P2P-friendly organizations. This electronic payment system was ideal for customers who were reluctant to share credit card information to anonymous sellers. PayPal was the perfect solution for everyone.  

How Do Peer-to-Peer Payment Systems Work?  

While everyone is probably at least passably familiar with PayPal and other P2P payment services, the practice may still seem murky. Peer-to-peer payment systems allow the user to either download and personalize the mobile app or pull up their account on their computer. Once they have an account, they link it to their credit card, debit card or bank account.  

During the user's transaction, their money is taken from their account and transferred to the recipient's account via the mobile application or P2P company's website on the computer. If the user sending funds does not have enough money in their P2P account, the funds are then drawn from their linked bank account, credit card or debit card.  

Who Currently Provides Peer-to-Peer Apps and Platforms for Payments?  

With PayPal's success, many other companies have followed suit over the years. PayPal itself created a designated P2P platform for individuals, available in 18 countries including the United States, called PayPal.me. A few of the many worldwide person-to-person services include the following: 

  • VenmoVenmo launched in 2009 as a text message-based person-to-person payment system, later transitioning it into its own social media platform to allow for P2P transactions. This mobile app-based payment system is particularly popular among millennials.  

  • Square Cash. Founded in 2009 with the first app launched in 2010, Square Cash is another widely used peer-to-peer platform that features an uncluttered and easy-to-use mobile app interface.  

  • Clearxchange aka ZelleThis U.S.-based P2P payment network is owned by Early Warning, which is a financial company that specialize in finding unique payment solutions in the financial industry, and is another alternative in the ever-growing P2P field.  

The field of P2P providers is massive and growing larger everyday.  

What's New in Person-to-Person Payment Services?  

This past February, Fiserv combined Zashpay and Popmoney into one P2P service, which is still called Popmoney, and formed a partnership with more than 1,400 financial institutions to offer person-to-person payments to customers, reports Collaborative Finance.  

The U.S. banking system has recently announced that it plans to launch its own mobile app answer to Venmo in the form of the previously mentioned ZelleReuters has announced that five of the largest U.S. banks—U.S. Bancorp, Capitol One Finacial Corp, JPMorgan, Bank of America Corp. and Wells Fargo & Co.—will use be the first Zelle for its foray into the P2P world.  

How Secure Are Person-to-Person Transfers?  

Reasonably enough, there are many security concerns at every level that go along with the adoption of peer-to-peer payment systems. Take First Hawaiian, for example. The institution first performed intensive and lengthy due diligence checks before ultimately adding a P2P service to their roster, notes Bank Info Security. The article's author cites the "out of wallet" security benefits of peer-to-peer payment options since it features questions that a hacker cannot access on a credit report or in other locations.  

However, as is the case with any rapidly developing technological innovation, there is room for security challenges for anything connected to the internet, according to Investopedia. Each P2P provider needs to adhere to the strictest levels of bank security, data encryption to protect users. Gathering the right IT security team is essential to shore up security measures for any company set to launch their own person-to-person payment system.  

Learn More About P2P and the Potential Staffing Needs Involved  

Whether you need additional legal, accounting or IT professionals to help with your organization's involvement with the world of P2P payment systems, we can help you build your team. Contact us at ICS so we can discuss how we can help you build a talented and dynamic team to help you manage your peer-to-peer service involvement. 

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