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Understanding Peer-to-Peer (P2P) Payments

December 16, 2024
Hancock Whitney
Hancock Whitney

Peer-to-peer payments (often abbreviated as "P2P payments") have become increasingly popular for everyday financial transactions thanks to their ease of use, speed, and convenience. They have also become an essential tool for splitting bills, making small payments, and quickly transferring money between individuals.

Understanding P2P Payments

 

In fact, over half (64%) of Americans have used at least one P2P payment platform when paying other individuals, with roughly 40% of Americans making peer-to-peer payments on a monthly basis. As these numbers are likely to continue growing, it’s important to be familiar with both how P2P payments work and how to make your P2P transactions safe and secure.

 

What Are P2P Payments and How Do They Work?

A peer-to-peer payment is a financial transaction between individuals or peers that is facilitated by electronic or digital technology. It allows people to transfer money directly from their bank accounts, credit cards, or digital wallets to another individual's account without the need for traditional intermediaries like banks, credit unions, or payment processors.

The payee can then choose to either keep the funds within the P2P app’s digital wallet or transfer them to their bank account. This transfer of funds is completely private: It can be completed without the payer ever needing to know the payee’s personal bank account details, such as their account number or even what bank they use.

Here are some key characteristics of peer-to-peer payments:

  • Direct Transfer: P2P payments enable individuals to send money directly to one another, typically using a mobile app, website, or other digital platforms. This eliminates the need for cash or checks. The funding source for the money transfer is usually either a bank account or the digital wallet within the P2P service provider.
  • Convenience: P2P payments are often used for various purposes, including splitting bills, paying for services, or sending money to friends and family. They offer a convenient way to settle debts and make payments without the hassle of writing checks or handling physical cash.
  • Speed: P2P payments are usually processed quickly, with funds often becoming available in the recipient's account within minutes or hours, depending on the P2P service used.
  • Digital Platforms: These transactions are typically initiated and completed through digital platforms and mobile apps provided by financial institutions or dedicated P2P payment services. Examples of popular P2P payment apps include Venmo, PayPal, Cash App, Zelle®, Google Pay, and Apple Pay.
  • Difficult Refunds: Most P2P payment platforms do not provide refund support. This makes it imperative to make certain you have the transaction amount and payee information correct before sending money. In the event of an overpayment, incorrect recipient, or fraudulent product, it can be difficult to impossible to get your money back.
  • Not FDIC Insured: While there are some exceptions (Zelle® and some Cash App transactions), peer-to-peer payment platforms are generally not FDIC insured. Only banks are FDIC covered. This means that if a P2P platform fails and you have money in your P2P account’s digital wallet or a payment hasn’t fully processed, you might not be able to recover your money.

 

Are Peer-to-Peer Payments Safe and Secure?

Peer-to-peer payments are generally safe and secure, as most peer-to-peer payment networks feature some degree of both encryption and fraud monitoring. However, this does vary from platform to platform, so it’s necessary to do your homework before selecting which P2P service providers you want to use.

Fraud protection and the ability to submit complaints will also vary from P2P platform to P2P platform, and this is also where most P2P fraud comes into play. Hackers, fraudsters, and scammers will typically target the users of P2P payment services rather than the P2P networks and apps themselves.

This means that if you click on a phishing link, get taken in by a fraudulent scam, suffer the loss of your login information, or lose your unsecured mobile device, you could become the victim of P2P payment fraud.

So, while you can be confident that P2P payments are mostly safe and secure, you do need to take certain steps to avoid fraudulent activity.

 

How to Avoid P2P Payment Scams and Fraud

Sending P2P payments is fast and convenient, but how can you ensure that your financial information is secure and that your money reaches the intended recipient? How do you avoid P2P fraud and scammers? Here are some steps you can follow for secure P2P payments:

  1. Verify Recipient Information: Double-check that you're sending money to the correct person or recipient. Verify their P2P app username, email address, or phone number before initiating the transaction. Remember, sending money with P2P is like sending cash, so it's best to use this payment method to pay family members and friends instead of strangers or people you may not know very well.
  2. Review P2P Transaction Details: Before confirming a peer-to-peer payment, review the transaction details, including the recipient's name and amount. Ensure that everything is accurate to avoid sending money to the wrong person or in the wrong amount.
  3. Use Strong Authentication: Enable two-factor authentication (2FA) on your P2P payment account if it's available. This adds an extra layer of security by requiring you to enter a one-time code sent to your mobile device or email before completing a transaction.
  4. Beware of P2P Phishing Scams: Be cautious of phishing attempts for your P2P account information. Never click on suspicious links or provide personal information in response to unsolicited messages or emails claiming to be from the P2P payment service.
  5. Use Secure Networks: Avoid using public Wi-Fi networks when making P2P payments. Instead, use a secure and private network to minimize the risk of interception by hackers.
  6. Set Up a Secure PIN or Passcode: Use a strong, unique PIN or passcode for your P2P payment app. Avoid using easily guessable codes like birthdays or common number sequences.
  7. Enable Notifications: Turn on transaction notifications for your P2P payment app. This can alert you to any unusual or unauthorized activity on your account.
  8. Monitor Your Peer-to-Peer Payment Accounts: Regularly check your P2P payment accounts for any suspicious activity, and report any unauthorized transactions and fraud to the payment service immediately.
  9. Set Spending Limits: Some P2P payment apps allow you to set spending limits. Consider setting a limit on the amount you can send in a single transaction to reduce the risk of large unauthorized transfers.
  10. Keep Personal Information Private: Be cautious about sharing personal information related to your P2P payment account, such as your account number or login credentials.
  11. Educate Yourself on Security and Fraud: Stay informed about the latest security threats and best practices for safe P2P payments. Being aware of potential scams and fraud can help you make more informed decisions.

By following these guidelines and practicing good P2P security habits, you'll be able to minimize the risk of fraud or unauthorized transactions and be confident that you're safely using your P2P service.

 

Keeping Your Bank Account Safe from Fraud Is Our Highest Priority

Our information security team works around the clock to keep your personal financial information safe. We're dedicated to being your trusted financial partner and working with you to stay vigilant against criminals and fraudsters. That's why we regularly provide you with advice and guidance to keep your assets secure through articles such as this one in our Insights blog.

Visit our Security Center for more information and tips about how to spot suspicious activity, protect your identity, and keep your banking information safe online.

If you believe your Hancock Whitney accounts or personal financial information may have been compromised, please call us immediately at 1-800-448-8812.

 

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