In an on-demand peer-to-peer (P2P) economy in which we are increasingly using Uber, Lyft and Airbnb, we are now accustomed to managing activities of daily life via our smartphones, with immediate results. Lessening the intermediary is becoming the norm for speed and lower fees.
While mobile banking has traditionally been centered on bill paying and transferring money, making peer-to-peer payments using apps like PayPal, Zelle and Venmo fits into this mobile, on-demand lifestyle and will more and more be part of the economy.
Chatbots are projected to save the banking industry billions in the coming decade. Bots are built into existing technology and platforms such as messengers, and can enhance apps like PayPal. We largely communicate with family and friends through messengers. Business teams use messengers for an easier view of communication threads and faster response times. Therefore, it’s natural that we send payments and gravitate toward bots in messengers for simple banking needs.
Peer-to-peer payments are also becoming more prevalent in business transactions. In the increasingly global world of business, a remote employee or freelancer could be anywhere in the world, but traditional banks may not allow wire transfers to certain countries or may charge high fees, or the person you need to pay may be a resident of a country with an unstable currency where you can’t send money by wire transfer. Or you may need to pay a freelancer who doesn’t have a bank account. The ability to transfer funds securely and quickly makes the process so much simpler.
Here’s what you need to know as a business owner to make sure you’re getting all the benefits of making peer-to-peer transactions while avoiding any potential downsides you may not be aware of.
Be Aware of Potential Fees and Transaction Times
Despite the benefits associated with using a P2P service, there are sometimes drawbacks, such as unexpected fees of 2% to 3% of the transaction, payable to both the platform and the app. Venmo is popular because it is relatively fee-less, but users must have bank accounts to use the service. For many providers, it can also take one to two days to process the transaction and for the money to hit the recipient’s account.
Protect Your Privacy
While it can be fun to use Venmo’s pizza emoji when transferring funds, unless your privacy settings are restricted, your spending habits are public. Unless the provider encrypts the data being transferred, there could also be security issues associated with revealing account and personal information. You can help P2P services to keep your money and data safe by using a PIN; if not offered automatically, request notification for every transaction, and only send money to or receive money from people you know.
Business owners also need to be proactive in the use and security behind the P2P transactions. Business owners should keep track of payments the same as they do when writing checks to employees and consultants and follow W-2 and W-9 policies. Businesses also need to track transactions in real time in bookkeeping software because the transactions pulled from the bank account associated with the P2P transactions will list date and amount, but often not the recipient.
According to eMarketer, by 2021, the total transaction volume of mobile P2P payments in the U.S. is expected to surpass $300 billion. These transactions include everything from payments among roommates to business transactions. The convenience, ease, speed, security and flexibility of mobile P2P are already transforming how we do business to the point that improvements in the technology and bots will propel adoption of P2P payments to the detriment of cash usage. It will not happen overnight, but cash will no longer be king — P2P will be.