What are P2P payments?

P2P payments, also sometimes referred to as peer-to-peer payments or person-to-person payments, are a convenient way to transfer funds to another person using your smartphone or another internet-connected device. A friend or family member can send or receive money using P2P payment systems like Zelle® or PayPal®.

Keep reading to learn how P2P payments work as well as safety precautions to consider.

What you’ll learn:

• P2P payment providers allow you to send and receive payments using your mobile device.

• Commonly used P2P payment platforms include Zelle®, PayPal, Venmo and Cash App.

• Payments made using a P2P payment option are often encrypted to help protect users’ personal information.

• P2P payments linked to a bank account are generally free, like Zelle® in the Capital One mobile app, while P2P transactions made with a credit card may incur a fee.

P2P payments generally involve a third-party mobile platform that users download to their phone or other mobile device. Here’s how to make a P2P payment:

1. Create an account: After downloading the P2P payment platform you want to use, you can set up your account.

2. Link your payment method: Once you’ve created your account, you can link a bank account, or a payment method such as a credit card or debit card, to send and receive money from other users who have an account on that same P2P payment platform.

3. Initiate your payment or request for payment: When sending or requesting payment from another user in the P2P payment platform, you typically search for your contact using their name, email address or phone number. In some cases, you may also be able to complete a P2P transfer using a QR code generated by the platform.

4. The P2P service completes the transaction: Depending on which P2P payment platform you use, the money might be automatically transferred to the recipient’s bank account, or it might stay in the recipient’s P2P payment account until they opt to transfer it to their external account.

There are many different P2P payment platforms on the market. Each one has slightly different rules for what payment options it allows and how to send and receive money. Here is a brief overview of five popular P2P payment services.

If you use a mobile banking platform, chances are you already have access to this digital payment service. Zelle® is available in the mobile banking platforms of more than 2,200 financial institutions and is free in our top-rated Capital One Mobile app. Zelle® is a great way to send money to friends and family with an eligible U.S. bank account.

PayPal is a popular digital wallet that can be used for all sorts of financial transactions, including P2P payments. PayPal users can send payments to one another by using an email address, scanning a QR code or generating a PayPal.Me link that allows the other user to click and send a payment directly. 

When you receive a payment through PayPal, you’ll get a notice letting you know the money has been sent to you. You can then choose to transfer the money to your bank account or, for future PayPal payments, keep the funds saved in your PayPal account.

Domestic P2P payments are free if you’re sending funds using your bank account or PayPal balance, but P2P payments made using a credit card may incur a fee.

Venmo, which is owned by PayPal, is another P2P payment platform that makes it easier to pay friends or split payments for things like rent and utilities. And also like PayPal, Venmo is free to use when sending or receiving money to your bank account or Venmo account, but users may pay a fee to send money using a linked credit or debit card.

Cash App bills itself as a financial services platform that allows users to exchange money, stocks and even bitcoin with one another. Sending and receiving payments are free for both domestic and international payments, and users can make transactions using their phone number, their email address, a QR code or a unique identifier URL known as a $Cashtag.

While most P2P services are primarily used to transfer money between individuals, some can also be used to pay for services as well. PayPal, for example, is a digital wallet that allows P2P payments but is also commonly used for online purchases or even to pay bills.

Below are a few other scenarios where you might use a P2P payment service.

• To split a bill: P2P apps make it easier to split restaurant checks, divide rent payments among roommates or reimburse a friend for your portion of travel expenses.

• To crowdfund: Apps like PayPal make it easier to donate to a good cause or start your own fundraiser.

• To accept payment: If you sell things at an in-person or online marketplace and don’t want to limit your payment options to cash, credit cards or debit cards, P2P platforms can make it possible to accept digital payments.

• To keep card details private: If you’re worried about privacy online or just don’t want to enter your actual card number each time you shop, you might opt to use a P2P payment service at checkout.

It’s easy to send and receive P2P payments from your Capital One bank account. One of the simple and convenient ways is to sign in to the Capital One app and access Zelle for free.

You can also add your Capital One credit or debit card to PayPal or link your card to Google Pay.

Digital payment platforms that make P2P payments use encryption to keep your account information private. But that doesn’t mean they’re completely risk-free. While it can be easy to send money from your P2P account, it’s not always easy or even possible to cancel or reverse the transaction if you realize you sent money to the wrong person.

Taking the following precautions can help ensure you’re using P2P payments as safely as possible.

• Only send money to users you know and trust: Most of the P2P payments you make will be to people already in your contacts list, but it may be helpful to double-check that you’re sending a payment to the right person.

• Don’t accept payments you weren’t expecting: Scammers may pretend to accidentally send you money and then ask for it back. But in many cases, the payment originally sent to you was made using a stolen card or other fraudulent account information. In those cases, the money may never actually credit to your account and you’ll be out the money you sent back.

• Beware of phishing schemes: Never share your personal information, including your password, with anyone claiming to work for a mobile payment app. Scammers may try to trick you into thinking your account has been compromised and use this information to access your account.

• Add multifactor authentication to your account: Multifactor authentication is an optional security step you can add to verify your identity when you log in to your account. The authentication often comes in the form of a code sent to the mobile number or email address linked to your account and may help prevent someone from accessing your account even if they have your password. 

There are some clear positives about using P2P payments, as they complement our culture’s growing digital tendencies. When deciding whether to use P2P payments, you may want to consider the potential advantages and disadvantages.

Here are some possible benefits of peer-to-peer payments:

• Speed: P2P payments are usually fast. Payments can go through in minutes and sometimes just seconds — but the time it takes can vary.

• Convenience: Making digital payments often can be easier than carrying cash or cards.

• Security: P2P payments allow you to complete transactions without exchanging identifying financial information. Encryption and multifactor authentication can help protect your account from fraud.

Here are some possible disadvantages or risks involved with using P2P services:

• Fees: Many P2P platforms provide free money transfers, but some charge fees for certain transactions. For instance, they may charge a fee if you pay with a linked credit card or if you do an instant transfer. 

• Transaction limits: Some providers might put limits on how much money you can send.

• Less protection: P2P payments may not provide the same level of protection as credit cards do when it comes to things like fraud detection and other security features. Plus, if you mistakenly send money to a scammer or the wrong recipient, you might not be able to get your money back.

P2P payments can be an easy way to send money to friends and family without using a card or cash. Sending and receiving money is generally fast and free with helpful security features, though it’s important to exercise the same caution you’d use with any mobile payment app.

If you’re looking for a convenient way to send money for free, download the Capital One mobile app and get started with Zelle® today.