Peer-to-peer (P2P) payment systems facilitate electronic transactions between individuals through digital payment applications. P2P payments can be made through smartphones or computers by linking user bank accounts or cards. They act as a convenient payment system amongst individuals with many uses, such as sending money, making payments, and splitting bills.

What are P2P payments and how do they work?

P2P payments in the US

Many popular digital applications offer P2P payment services. PayPal is one of the earliest and most widely used platforms, and also owns Venmo, which is more popular among younger users. Venmo is widely used across the US for P2P payments, with over 91.2 million users in 2024. Zelle is another provider, integrated into many banking apps, enabling direct transfers between bank accounts. Cash App is known for its simplicity and additional features like investing in stocks. Apple Pay is another widely used P2P payment provider that incorporates P2P payment options within broader payment ecosystems.

P2P payments in India

With the introduction of UPI in 2016, P2P payments have garnered massive popularity amongst users. As of 2023, with over 1.03 billion Indians connected to the internet, the market share of UPI payments in India has increased from 2% in 2016–2017, to 52% in 2021–2022, according to a BFSI study. P2P payments dominate the UPI landscape, with over 42% of P2P payments being made through UPI. Digital platforms like Paytm, PhonePe, and GPay provide P2P payment services. With fast, secure, and convenient transactions, consumer preference has shifted towards UPI-based transactions.

Peer-to-peer transaction regulation

In the United States, P2P payment services are regulated by the Consumer Financial Protection Bureau (CFPB) and must comply with the Electronic Fund Transfer Act (EFTA). Additionally, they must adhere to anti-money laundering (AML) regulations and the Bank Secrecy Act (BSA) to prevent fraudulent activities. In India, P2P payments, and all other payment forms, are regulated by the Reserve Bank of India.

Key features of P2P transactions

P2P payments have greatly improved the speed of transactions. Transactions are typically instant or near-instant, making it quick to send and receive money. With simple interfaces and mobile app accessibility, P2P payments are also very user-friendly. They are also available 24/7, eliminating the need for physical visits to banks. However, users may be susceptible to scams through P2P payments. There may also be fees involved in the transactions and limits on the amount that can be sent per transaction or per day, which may be restrictive.

Benefits of P2P payments

P2P payments have significantly transformed the payments landscape. P2P payments are used by a wide range of individuals who favor digital solutions and who appreciate the simplicity of sending money without needing to visit a bank. They have contributed to reducing cash usage by encouraging digital transactions over cash. They have also facilitated financial inclusion by providing an easy method for unbanked or underbanked individuals to transfer money. They provide an efficient solution for quick transfers and promote the use of digital wallets and mobile banking apps, too. With Zoho Payments, merchants can make P2P payments through various payment methods offered, including credit and debit cards, net banking, and UPI options.

P2P payments for merchants

Many merchants use P2P payments for conducting transactions for their businesses for business purchases, operations, travel, and other reasons. Peer-to-merchants (P2M) are merchants who receive P2P payments. Merchants can create business profiles in P2P platforms like PayPal and Paytm, and use it to generate a QR code that can be showcased to customers at checkout, both on ecommerce platforms as well as in stores. Merchants can also make P2P payments to manage their warehouses, place inventory orders, and manage expenses.

Risks of P2P payments and mitigation

In P2P payment platforms, users are subject to the risk of phishing scams or fraudulent requests. A compromised account may also lead to fund transfers without the user's consent. There are privacy concerns in certain platforms that have features that may expose transaction settings without proper configuration of privacy settings.

P2P payment providers use various tools to secure data. Most platforms use advanced encryption to protect transaction data, along with two-factor authentication (2FA). When used, 2FA adds an extra layer of security to user accounts. Providers also continuously monitor accounts for suspicious activity and to control fraud. Users are advised to exercise caution when making P2P payments, especially when conducting transactions with unknown contacts. They should stay vigilant and look out for any suspicious requests or activity.

Fees

There are no transaction or processing fees. In the US, most P2P payments can be made free of cost. However, the cost structure of P2P payments varies by service provider. Standard transfers are usually free when linked to a bank account. Here are some other common fees charged.

• Instant transfer fees: A percentage (typically around 1%) of the transfer amount for immediate access to funds.
• Credit card fees: Credit card fees for transactions can range from 1% to 3% of the transaction amount depending on the service used.

Conclusion

P2P payments have revolutionized how individuals transfer money, offering a blend of speed, convenience, and accessibility. They have grown to dominate the online payments industry with a sizable market share, especially in India. They allow users to make instant payments and have increased connectivity. As the digital payments landscape continues to evolve, P2P payment services are likely to expand along with the industry, further integrating into daily financial transactions and contributing to the ongoing shift towards a cashless society.