You’re used to paying at stores with a plastic card…switching money from savings to checking with a click…and having paychecks or Social Security payments deposited electronically into your bank account. So how long are you going to keep forking over cash or paper checks when you want to give money to friends, relatives, household help or other individuals?
There now are more convenient ways to exchange money than the centuries-old practice of passing pieces of paper back and forth! “Peer-to-peer,” or “P2P,” electronic-payment services allow you to use your smartphone to send and receive cash. By 2021, more than 129 million US consumers are expected to use these services to exchange hundreds of billions of dollars, according to Javelin Strategy & Research, a digital-money consulting firm. So even if you’re content using old-fashioned cash, someone is likely to want to make a P2P payment to you before long.
Is this type of payment really safe and easy enough to replace cash in your wallet? Bottom Line Personal asked digital-money expert Lou Grilli for the smartest ways to use these cash-transfer services and which ones offer the best combinations of speed, safety and convenience for your needs…
There are more than a dozen P2P services to choose from, with snappy names such as Venmo and Zelle. Many are small tech start-ups, but Internet giants such as Google and Facebook have gotten into the business, as have more established digital-payment providers such as PayPal and, most recently, a consortium of more than two dozen major banks and credit unions.
Almost all of these P2P services work the same. To send money to someone, the service acts as a middleman, making an online transfer from your bank account and typically storing the cash in a digital escrow account for the recipient, who then is notified. The money then can be transferred to the recipient’s bank account, either automatically or at the recipient’s request. You and the recipient must each have downloaded the P2P service’s app to your mobile device…input contact information…set up a password…and for most services, provided your bank routing and account numbers. Some services also allow you to request that the cash be drawn by taking an advance on your credit card or by linking the service to your debit card—both of which might make the transaction go through faster. Once your account is established, you exchange money simply by entering the person’s cell-phone number and/or e-mail address, filling in the amount and tapping “send.”
Keep the following in mind when deciding whether to use a P2P service…
P2P cash transfers are not instantaneous. They typically take one to three days to complete, similar to clearing a check. That’s because most P2P transactions still go through the Automated Clearing House (ACH) network that banks have been using for 40 years. Only Zelle (see below) moves cash directly from your bank account to another person’s bank account within minutes.
Using P2P services can incur charges. If you link to your bank account, transactions usually are free. But the services charge the sender up to 3% of the amount of the transaction if you link to a credit card or, with some services, to a debit card. Also, you typically do not get rewards points or miles if you draw cash from your credit card using a P2P service.
There are limits to how much you can send. The limits vary widely among services, ranging from $300 a week to $10,000 per transaction, and sometimes individual banks set their own limits.
You should use P2P services to exchange cash only with trusted parties, not with strangers. Reason: A scammer might, for instance, pretend to buy something from you and then cancel payment. Or you may make a purchase from a scammer who doesn’t send the item. Although the services use similar security technology as banks do to keep transactions safe from hackers, if a thief does steal your money through a P2P service, federal law does not require the service to reimburse you or to follow a dispute-resolution process, although the service may choose to do so.
You also might be vulnerable to losses if a thief steals your phone and if access to your phone and P2P app do not require a password, PIN or thumbprint. If the thief transfers money using a credit card, debit card or bank account, federal regulations greatly limit your liability. If the transfer is shifting money that already is in your P2P escrow account, however, you have to abide by the payment service’s own resolution process, which may or may not result in getting the money reimbursed. Self-defense: You can activate extra levels of security that P2P services provide such as PINs and/or fingerprint authentication.
You may want to sign up for several of these services and keep multiple apps on your phone, depending on which ones are used by the friends and relatives you plan to exchange cash with the most.
PayPal. If you use just one service, this one makes the most sense because it has the most users and is widely trusted. Nearly 200 million individuals already link their credit cards to a PayPal account to facilitate consumer-to-business online purchases. Fees/limits: 2.9% of the amount of the transaction is charged when you link to a credit or debit card…$10,000 limit per transaction. PayPal.com
Venmo. Owned by PayPal, this service is geared toward (but not limited to) millennials, 20-somethings who like to split the cost of meals and other expenses with roommates and friends. The average Venmo transaction is less than $10. The app features a popular Facebook-style news feed that encourages users to share their spending activities with their friends on the service. Fees/limits: 3% of the amount of the transaction for credit cards…$2,999 transaction limit per week. Venmo.com
Zelle. The newest P2P service, launched in June, is jointly owned and operated by a growing list of banks and credit unions including Bank of America, Chase, Citi, TD Bank, Wells Fargo and First Tech Federal Credit Union, one of the largest credit unions in the US. The Zelle service, embedded in each member institution’s own online banking app, allows any account holders at its member banks to transfer money directly from one bank account to another. Fees/limits: No fees. Transaction limits are set by individual banks. Zelle’s instant transfers with a minimal holding period make it seem like an obvious winner, but there are drawbacks. You cannot link a credit card to the service. Also, for fast transfers, the sender and receiver must each have an account at one of the major institutions in the Zelle network. Otherwise, it takes the same one-to-three-day processing time as at other P2P services. ZellePay.com
Google Wallet. If you already have a Google account and the Google app, you can just log in and sign up for this service. Wallet synchronizes with other Google accounts, including Gmail, and you can send or request money by clicking the $ icon at the bottom of any Gmail you send. Fees/limits: No fees. You may send up to $9,999 per transaction…no more than $10,000 every seven days. As with many Google products, Google Wallet gleans general information from the transactions you make and can use it for targeted advertising unless you adjust your privacy settings to opt out. Google.com/wallet
Facebook Messenger. Facebook has embedded the ability to pay other Facebook users in its instant-messaging service. You sign up for the P2P service, then open the chat feature in Messenger and press the $ icon in the toolbar. Fees/limits: No fees, but you can link only your debit card to the service. Transactions are limited to no more than $9,999 in a rolling 30-day period. Like Google Wallet, you have to opt out to avoid having your activity scanned for targeted advertising. Messenger.com
Apple Messages. This new P2P service, using the Messages app, is part of Apple’s latest operating system upgrade (iOS 11). As of August, Apple had not announced the fees or transfer limits. Apple’s cash-sending and cash-receiving features are limited to users of an iPhone, iPad or Apple Watch. Support.Apple.com/explore/messages
