What are P2P payments and how do they work?

In today’s digital age, we’re all utilizing different digital technologies to manage our individual finances. One popular method is through Peer-to-Peer (P2P) payments, which allow us to pay another person instantly, right from a smartphone app. Thanks to this technology, IOUs are now a thing of the past — when someone buys your bacon cheeseburger and fries, you can pay up right away. 

So, how can we use P2P apps safely and wisely? Let’s learn about these apps, how they all work, and how to consider what might make the most sense for you. 

What is P2P technology?

P2P technology allows users to transfer money directly from one person to another without cash or checks needing to exchange hands. This is typically done through independent apps that connect to your bank account, debit card, or credit card. Some P2P services are even available within your bank’s mobile app.

How do P2P payments work?

P2P payments work by linking your bank account or credit card to the P2P app. When you send money, the app transfers the funds from your account directly to the recipient’s P2P account. This process is usually quick and can be done with just a few taps on your smartphone. Once deposited into the P2P account, the funds can be transferred to the individual’s bank account or used to pay others through the app.

How can I use P2P apps safely?

While P2P networks are generally safe, it’s important to understand the potential risks. Here are some tips to use P2P networks safely:

• Verify the recipient: Always double-check the recipient’s information before sending money. For instance, some apps might have you verify the last 4 digits of the receiving party’s phone number for verification. Skipping this step might mean sending money to an unintended recipient who likely won’t return it!
• Use strong passwords: Ensure your P2P app is protected with a strong, unique password.
• Enable security features: Use features like two-factor authentication to add an extra layer of security.
• Avoid predatory scammers: Only use these apps to send money to friends, family, and other people you trust. Verify your recipient’s name, phone number, and email address before sending money — and if a situation feels off, trust your gut. Rarely should you use a P2P app to purchase something from a third party. 

Is it OK to leave funds in my P2P account for later?

Not really. P2P platforms are designed for quick and easy money exchanges, and that’s about it. It can be tempting to hold your money in the account for a later transfer, but the money you have in these apps isn’t automatically protected the same way money in your bank account is protected by the FDIC. The money in your P2P account won’t earn interest, either, so it’s always a good idea to transfer the funds into your bank account as soon as possible. 

Picking the best digital options for your lifestyle

Smartphone apps can certainly help with money management, safely and conveniently. Comparing options will help you decide which options work best for you and your lifestyle. Our people are here to help you sort it out — and are always available to answer your questions about different digital options and their safety and effectiveness.