How to use peer to peer payment apps like Venmo, Cash, PayPal, cell – Natural Self Esteem

Peer-to-peer mobile payment apps like Cash App, Venmo, PayPal, andzelle are so ubiquitous that some have become obsolete. After going out for dinner with friends, you “venmo” the money to whoever paid the bill instead of bothering with cash. You share the utility bill or Netflix bill with roommates, etc.

The appeal is obvious.

With peer-to-peer payment, also known as P2P, you can pay without knowing your account details. Just search by a person’s name or phone number. The transfer is fast and usually free of charge. Usage varies by age, but the majority of Americans now use mobile payment apps. According to a study by Nerdwallet, 94% of Millennials use mobile payment apps, compared to 87% of Gen Zers, 88% of Gen Xers, and 65% of Baby Boomers.

There are pros and cons—and some factors that are often overlooked—of using peer-to-peer payment apps instead of traditional banking and lending infrastructure. Here’s a rundown of what you need to know about the popular fintech alternative.

Don’t broadcast to those you don’t know

As more Americans use P2P to make online purchases, they’re not just using it as a convenient way to pay back friends and family. In fact, Americans are increasingly using these apps primarily to make online purchases.

Nerdwallet found that 53% of those already using mobile payment apps primarily use them to pay for online purchases at retailers. Paying friends or family members was the second most common reason at 43%, followed by paying bills at 40%.

Using these P2P systems to pay vendors is convenient, but Ted Rossman, Senior Industry Analyst at Bankrate and Creditcards.com, advises a little caution. It’s still the safest to use P2P payment systems with friends and family as they don’t offer the same protection as credit cards.

Suppose you buy concert tickets from someone through a P2P app and the tickets never arrive. If you’ve sent money and goods or services you received aren’t as promised or don’t arrive at all, you may be out of luck.

At worst, “it’s gone as soon as it’s aired,” Rossman said.

This doesn’t mean that a payment made through a P2P network can’t or won’t be refunded, but it can prove more difficult, and at the very least, it’s more important to know the person or provider you’re doing business with. In most cases, it is very different from a credit card, which offers better fraud protection and, as a line of credit granted by a card company, is easier to quickly refund than money from a personal account that has already been immediately transferred to someone else.

So the first rule of thumb with these peer-to-peer services is: “Don’t send it to people you don’t know and don’t trust. Because it’s really hard to get that money back,” Rossman said.

Check the fraud protection and refund policies

There are varying degrees of consumer protection from the P2P companies, and based on his analysis of the options, Rossman says PayPal offers better buyer protection than Cash App or cell, although the latter was set up by a consortium of large banks to compete with the P2P -Challenger.

There is a compromise when using P2P apps. A consumer benefits from the instantaneous nature of the transaction, but runs the risk that it cannot be reversed. For this reason, Zelle recommends using it only with trusted partners.

Besides paying friends and family, there are many trusted providers in life where P2P apps can be a good option, e.g. B. an electrician or babysitter. “But using it at a retailer that you don’t know from experience and just hoping the stock shows up is a bad idea,” Rossman said.

Venmo offers an option to checkout with a “Goods and Services” button that requires the seller to pay a small transaction fee. This can become more important when you’re making a purchase from a provider you don’t know and have never used before, and the purchase isn’t from a credit card account tied to your P2P app.

If you need to make a refund request, there are a few important things you should know. For one, if you have an underlying account tied to your P2P app, either a credit card or a checking account from a bank, there are additional levels of customer service that you can contact. You can request a refund through a P2P network, but it may require a lot more legwork and persistence compared to a credit card company, who often reverse charges almost immediately and fight directly with a vendor on your behalf. “It’s harder to get real money back than it is to restore a line of credit,” Rossman said.

Be careful when sending large quantities

The lack of fraud protection should also discourage people from sending large amounts of money.

If this is your first time sending to a friend and your friend has the same name as 85 other people, double check you have the right person. Some apps, like Venmo, ask for the last four digits of someone’s phone number when you first send it to someone. You can still broadcast without this information, but it gives you better protection.

Also, be wary of people you don’t know asking for money through P2P payment systems. Payment apps have also made it easy for scammers to prey on the unsuspecting, and there has been a rise in fraud via text, phone call or email. “P2P payment systems have a lot of bad actors and unwanted phishing going on, and there aren’t a lot of buyer protections in place,” Rossman warned.

Check fees and features for additional P2P services

More and more people are using mobile payment apps as de facto bank accounts. In their study, Nerdwallet found that two-thirds of mobile payment app users have balances in their mobile payment app accounts that average $287.

Most transactions such as B. Payments to friends and family are free, but there are some fees for additional services. When transferring funds to a bank account, you have the choice to transfer within one to three business days or immediately. PayPal charges a 1% fee for Sofort Banking, while Venmo charges a 1.5% fee (with a minimum fee of 25 cents and a maximum fee of $15). Cash App charges 0.5% to 1.75% for instant deposits.

Likewise, paying with cash — either from a balance in your account or cash from your bank account — is free, but paying with a credit card comes with a transaction fee.

Additionally, many apps offer more traditional banking-like services. Some, like PayPal and Venmo, offer credit cards. The PayPal Cashback Mastercard offers 2% cashback on all purchases, while the Venmo card gives 3% cashback on your highest spending category and 2% on your second category.

You can now have your paycheck deposited into a mobile payment app. It is possible to buy and hold cryptocurrency via Cash App and PayPal. With the Cash App, people can now even file taxes via Credit Karma Tax.

PayPal also offers a line of credit that comes with a very high interest rate of almost 30%.

Another service that has grown in popularity is the “buy now, pay later” installment plan, which gives people the option to pay for their goods in multiple payments over weeks or months without interest. Many banks have long offered layaway plans, but the concept is booming again as emerging fintechs have rebranded and made layaway more user-friendly, mobile and friendly. If you’ve recently seen warnings from a card provider that a purchase is eligible for a form of ‘easy’ payment, it’s probably in response to how popular the rebranded BNPL has become. But there can be penalties and interest for late payments, just like with credit cards, if the buyer doesn’t keep payment schedules up to date.

Large peer-to-peer companies are not yet banks

Although banking services are becoming more robust, there are important differences. Mobile payment apps, unlike banks or credit unions, are not FDIC insured. If anything ever happened to the company, your money would be gone.

But Douglas Boneparth, president and founder of Bone Fide Wealth, which caters to a younger financial advisory clientele, says he’s less concerned, and as long as someone isn’t carrying thousands of dollars in their mobile banking app, the convenience factor is big .

“When was the last time FDIC insurance was needed? … I certainly haven’t heard from that in a while,” he said.

Venmo and PayPal are both part of PayPal’s parent company, while Block, formerly Square, owns the Cash App, and these are big companies now, so the protection of FDIC insurance isn’t necessarily that important to the average person who doesn’t hold it large amounts of cash in the first place.

“You see the development, you know, a lot of them are becoming extraordinarily adept … they’re caring for, innovating and adopting things that are very appealing to younger demographics. This is the future of commerce,” said Bonepart.

Rossman says it’s true that none of these big P2P companies are going out of business any time soon, but consumers should at least know that without FDIC insurance, there’s a risk, even if it’s small. The bigger point is, “They’re not a perfect substitute for a bank. I tend to think of it more as a complement rather than a full-fledged bank account,” he said.

With 5% of Americans being unbanked and three times that many being underbanked, there are still reasons to join the banking system rather than avoid it entirely.

A person with no banking experience may find it more difficult to secure the credit relationships needed in life, such as car loans and mortgages. “Many people are voluntarily unbanked. Maybe they don’t trust the banks or they’re in a banking desert,” Rossman said. “But if you put all your eggs in that one basket, that can hold you back in the long run. Ultimately, I’m still saying that you should try to join the banking system. Ultimately, it’s nice to have a bank account where you can write a check or go to an ATM or pay bills.”

Just as consumers are now experimenting with the number of streaming services they need to restore value to a cable TV account without ending up with a similarly large bill, financial services can become overly complex and costly as options multiply.

“The banking system and relationships offer some convenience. There are workarounds, but sometimes the wheel re-emerges,” Rossman said.

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