read

Guide to peer-to-peer payments: Everything you need to know about P2P banking services

Today’s high-tech generation is all about connectivity. Advances in online banking allow users on a computer or mobile device to take care of services that could, at one point, only be done at a bank, credit union, or other financial institution.

P2P technology makes it easy for individuals to manage their bank accounts on the fly, providing a secure location to process money transfers, conduct mobile banking, and take care of file sharing needs. But what does all that mean? Let’s dig a little deeper.

 

What is P2P?  

P2P stands for peer-to-peer, as in two entities connecting directly to each other. P2P platforms help transfer information securely across a virtual private network. It’s called peer-to-peer because it’s largely used to transfer information, like bank account information, from one person — or peer — to another, rather than transferring information from a corporation to an individual or from a corporation to another corporation.

P2P file sharing has been around since 1999, when Shawn Fanning created Napster to facilitate music sharing across different devices. Although Napster was eventually shut down, other P2P services have since filled the void. In recent years, P2P apps have become common. Some businesses need P2P apps to function at a competitive level.

 

What’s behind the growth in P2P use? 

 The rapid growth of the global P2P market in recent years may be linked to a number of factors:  

  • Younger generations have an increased preference for technology over in-person payment options.

  • Improved download speeds make P2P file sharing faster than ever.

  • Cloud computing software allows sensitive information to transfer between peers with minimal security risks.

Younger people — especially Millennials and Gen Z — don’t feel the same connection to traditional bank accounts that their parents may have previously experienced. Instead, they’re searching for convenient services, from online bill pay options to payment automation, that can help them bolster their credit scores and streamline their money management with minimal effort.

 

Who uses P2P?

P2P services are used by a wide array of individuals, from college students looking to divvy up the cost of a meal to young adults sending their parents payments each month so that they can remain on family phone plans.

Digital natives — those who’ve been using digital technology their entire lives — have fueled the growth of P2P network services, and as they discuss its benefits with others in their funding circle, the use of P2P apps grows.

P2P payments are often more convenient than paying with checks or using a debit card. Depending on the service provider, they can even offer cost savings by eliminating things like ATM fees.

 

P2P services you should look for

The current banking industry direction leans toward companies offering more request-to-pay services and other social P2P payment apps. This benefits you as a consumer, because when banks offer P2P payments and P2P lending options in a mobile app format, it allows you to continue working with your bank, rather than needing to use external companies and their apps for your online banking needs.   

P2P payment platforms 

One of the most popular ways to leverage cloud technology is to use P2P payments. Companies like Google Pay and Samsung Pay are already taking advantage of this technology to appeal to their customers.

Such payment platforms can allow customers to send money back and forth within the app, then manually transfer funds to their personal bank accounts. Alternatively, they can use the apps in lieu of debit cards and have the funds pulled directly from their bank account. Either way, money is transferred from one customer to another without the two people ever needing to be in the same physical space.

Customers can also use digital wallets for requisitioning payments and transferring money without using checks, which is a preference for many in today’s eco-conscious environment, in which many customers are trying to go paperless.

P2P fundraising

If you are part of a lending club that frequently donates to charities, or you run a nonprofit and are looking to fundraise, having a strong P2P network can make this aspect of your organization’s efforts much more convenient. P2P fundraising apps allow donors to offer money to organizations without worrying about funds getting lost in the mail or needing to go through a middleman. Cloud computing helps donors protect their investments and ensures that the funds go to the right accounts.

P2P loan options

For many people, borrowing and lending options offered through P2P technology are especially appealing. Compared to traditional loans, P2P lending tends to offer lower fees, easier applications, and a shorter application period. Conveniently, loan applicants often know right away whether or not they’re approved for a loan and can access their money more quickly than if they went through a traditional loan application process.

Some companies are even using machine learning to recommend investments for P2P lending. This can help investors feel more secure in lending their money while also allowing customers to receive loans more quickly than through traditional banking options.

P2P network file sharing

File sharing is another major reason for using P2P networks. For example, Google Scholar uses P2P services to allow people to search for scholarly literature from any location. This type of file sharing is convenient for scholars or college students who are working on the go.

When you’re talking about finances, finding a financial institution that offers file sharing makes their P2P services more than just another cash app. File sharing can allow customers to send sensitive information, such as loan agreements, to the bank without ever leaving their homes.

 

Why do you want access to all of these P2P services?

You may wonder if you need your local credit union to offer all these P2P services. But remember: Once a bank has a P2P platform with all of these services, you only need to download one easy payment app to have all your financial needs met. Sometimes these P2P services can even be integrated into your bank or credit union’s online site or mobile app.

Additionally, by going through your bank rather than a third-party company, you can feel good about the security of your funds. Third-party payment apps can sometimes lead to P2P app fraud, whereas a financial institution is typically more secure.  And if something goes wrong, money can usually be tracked by IP address to ensure that it arrives at the correct destination.

Providers can even offer protection tips to help their customers get the most out of their banking experience.

If the financial institution you’re working with currently doesn’t offer all these P2P services, it doesn’t necessarily mean you need to stop working with them. Instead, consider reaching out to decision-makers in your bank and making a case for why they should improve their P2P apps. Be specific about what you’re looking for.

For example, if they offer money transfers but they don’t offer file sharing, point out why file sharing could help their bank save money and be more efficient. Don’t be surprised if they already have plans in the works to bring the technology to you.

 

What you need to know about checking and P2P services

Every P2P money sharing app needs a way to get money from the app to the users. Connecting a P2P payment app to a checking account is the easiest way to send and receive money. Whether you’re a typical customer or a small business owner, all you need is a mobile device and your P2P app, and you can start making transactions with a touch of your thumb. A P2P payment platform starts by having an individual sign-in with their checking account number and bank routing number. This information is protected within the cloud.

Once two users are connected to the same P2P service, it works just like a check. When one customer sends money, the funds are requisitioned from their checking account and moved, digitally and seamlessly, to their peer’s checking account.

Checking can help maximize P2P services because it allows you to store large amounts of money securely in a federally-protected bank account rather than having portions of your finances housed on an unprotected P2P payment app. Additionally, your checking account money can not only be used for P2P services, but also for other banking and payment needs.

 

What other tools can integrate with P2P services?

P2P apps can do more than facilitate a money transfer between you and other people in your life. The best P2P networks integrate with other tools to make your life as convenient as possible.

For example, if a P2P service already offers file sharing, you might look to see if it integrates with tools that allow you to sign documents remotely. Remote signing tools can make file sharing even more powerful because you can complete a purchase order or sign off on an invoice with a touch of your fingertip.

Another great tool that sometimes integrates with P2P services is the ability to check your credit score and credit score factors remotely. Knowing this information can help you make key financial decisions, like whether it’s a good idea to open a new credit card, or whether you’re at capacity for new lines of credit and should just put your purchase on your existing debit card.

 

Look for good P2P services at your local financial institution

With P2P apps, you can access your funds any time of day. Instantaneous money transfers ensure no one has to trust that a check is coming in or that payments won’t bounce. Instead, they can feel confident doing business with one another any day of the week and any time of day. The only limit to online banking success is your phone or computer network’s download speed.

Talk to local financial institutions about their P2P app options and discover which features their apps provide. P2P apps through FDIC-insured financial institutions tend to be more secure and more trustworthy than third-party P2P apps. For the greatest online banking success, look for an institution that offers payment apps that connect directly to your checking account and that provide seamless tool integrations and paperless document transactions.

 

Discover more ways to be proud of your money in our previous blog post, "Open your new checking account online."

Tags: My Finances, Rewards Banking, Banking