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P2P transfers

P2P transfers

Peer-to-peer transactions (also referred to as person-to-person transactions, P2P transactions, or P2P payments) are electronic money transfers made from one person to another through an intermediary, typically referred to as a P2P payment application. P2P payments can be sent and received via mobile devices or any home computer with access to the Internet, offering a convenient alternative to traditional payment methods.

Through the P2P payment application, each individual's account is linked to one or more of the user's bank accounts. When a transaction occurs, the account balance in the application records the transaction and either send or pulls money directly to the user's bank account or stores it in the user's account within the application.

Since this concept's inception, many business entities have developed P2P transaction capabilities, increasing the competition in the space and the convenience brought to the consumer. The prevalence of mobile devices has also forced the adaptation of P2P payment applications to become more convenient for users.

P2P payment application functionality varies, but the processes generally follow a similar structure:

  • First, the user downloads the application and creates an account and links it to a credit card, debit card, or bank account.
  • Then the user can create contacts and send payments using another user's email address, phone number, or account handle.
  • During a transaction, money is taken out of the user's account within the application and transferred to the receiving user's account. If there is not enough money in the account to complete the transaction, money is taken directly from the user's bank account to finish the transaction.

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F.A.Q about P2P transfers

What are Person-to-Person Payments (P2P)?

Person-to-person payments (P2P) is an online technology that allows customers to transfer funds from their bank account or credit card to another individual's account via the Internet or mobile phone.

How Do Person-to-Person Payments (P2P) Work?

There are two general approaches for initiating a person-to-person payment:

In the first method, based on the successful Paypal approach, users establish secure accounts with a trusted third-party vendor, designating their bank account or credit card information to be used to transfer and accept funds. Using the third party's website or mobile application, individuals can complete the process of sending or receiving funds. Users are generally identified by their email address and can send funds to anyone who is a member of the network.

In the second method, customers use an online interface or mobile application (developed by their bank or financial institution) to designate the number of funds to be transferred. The recipient is designated by their email address or phone number. Once the transfer has been initiated by the sender, the recipient then receives a notification to use the online interface to input his or her bank account information and routing number to accept the transfer of funds. In this method, recipients do not need to have an account with the financial institution of the sender in order to receive a money transfer.

Why Do Person-to-Person Payments (P2P) Matter?

The increased acceptance of online banking, mobile banking, and e-commerce by consumers has paved the way for greater use of person-to-person payments.

After more than a decade of PayPal dominating the market, major banks and credit card companies are finally getting in on the action. This type of capability has long been available in many parts of the world, but major financial institutions in the U.S. have been slow to adopt the technology. It is an important step for banks and credit card companies as commerce evolves beyond the individual-to-merchant relationship to a broader, individual-to-individual exchange.