04.07.2021 / Chelsea Stefanelli - Director of Deposit Operations and Specialized Services
From paying a friend back for coffee, splitting a restaurant bill, or sending your roommates your share of the utility bills, peer-to-peer payment (P2P) apps have made paying for things a breeze. Technology has made everything seem limitless, so there is no surprise that this fast-paced way of life has now embedded itself into the life of banking and financial industries.Mobile technologyhas redefined financial services bringing an ease and immediacy that was previously unheard of. By leveraging order-in-one-click technology, P2P apps like Venmo, CashApp, PayPal, and Zelle help youtransfer moneyin a matter of seconds.
How Peer-to-Peer Payments Work
Peer-to-peer payments have become even more popular during the pandemic as they've enabled people to reduce contact by going virtual and cashless. As apps increase in popularity, it is essential to know how they work in the first place. Peer-to-peer payments digitize day-to-day transactions by initiating payment directly from a bank account - similar to debit cards – just without the card. In real-time, you can transfer money from your bank account or from one payment account to another. Even so, unless you are careful, using peer-to-peer payment apps can leave you vulnerable to fraud.
Are Peer-to-Peer Payments Safe?
The question is do faster payments mean faster fraud? Not necessarily. Peer-to-peer payment systems encrypt and shield your financial information, and most companies have support teams and fraud monitoring procedures in place to help solve issues involving unauthorized access. The technology these platforms use is secure, but there are scams centered on Peer-to-peer payments. Here are some common scams you can encounter:
- Identity fraud - This is where scammers with access to your sensitive information may also access your account. All they would need is your Social Security number or any other sensitive data. You can even receive spoofed calls from the IRS claiming you owe unpaid taxes or calls from bogus companies who claim you owe an unpaid debt.
- Consumer fraud – This can happen when you buy goods that never show up. Make sure to always buy from verified sellers. Peer-to-peer payments are hard to reverse, and you can lose your hard-earned money if you are not careful. Be sure to only send money to the person or company you intend to before you send it.
- Phishing scams– Be leery of emails, phone calls, or messages asking you for information or to access a link. Usually, these messages are phrased to sound like emergencies or make it seem like you've won the lottery or some other type of sweepstakes but are often geared towards stealing your information.
Companies offering peer-to-peer payment platforms are invested in keeping your information and your money safe. However, you should always err on the side of caution. Here are a few measures you can take to help peer-to-peer service companies keep your money safe.
- Enable 2-Step Verification – This is the best way to protect your account from cyberattacks. It adds a second layer of protection by requiring a PIN, confirmation via phone, or a passcode sent to your phone or email for transactions to go through.
- Opt for a notification for every transaction.
- Don't pay strangers with peer-to-peer payments. It can be a challenge to get your money back.
- Link your Peer-to-peer payment account to a bank account, credit, or debit card. This way, you're protected under federal law if your money is misdirected.
Remember, using peer-to-peer payment apps means your transactions clear faster, which works to the advantage of fraudsters. If you suspect you've fallen victim to a scam, here's what you should do.
- If your account is linked to a bank or credit card, contact the financial institution, and inform them of the fraudulent transaction and ask for it to be cancelled or reversed.
- If the payment cannot be cancelled, reach out to the payment app for support and request a refund. For instance, PayPal has a Purchase Protection for Buyers that can help you get your money back.
- Also, always report a scam! When you report fraud to the FTC, you can help spot trends and build cases against scammers.
Stay Safe
Fraudsters come up with new ways to scam you out of your money every day. You can even be asked for fraudulent charitable donations. The key to preventing fraud is to always be careful and verify whether the business you're sending money to is legitimate. Also, always review your provider's security procedures to identify whether they have fraud policies in place before you sign up.
FAQs
The real security concern is that P2P payment apps make it easy to send someone money, but they don't always make it easy to reverse or cancel a transaction. Because of this, criminals can use them to trick victims into transferring funds.
How safe are P2P apps? ›
First and foremost, because they're as fast and convenient for criminals, as they are for consumers, P2P apps—like Zelle, Venmo and Cash App—are favorite tools for modern-day scammers. It's also important to know that, even though they may be associated with your bank account, no fraud protections exist on P2P apps.
What are the problems with P2P payments? ›
One of the primary challenges in P2P payments is ensuring that both parties engaging in the transaction are legitimate. A comprehensive approach involves redefining authentication measures. Beyond traditional methods like passwords, the incorporation of biometric authentication adds an extra layer of security.
What are the cons of P2P apps? ›
The cons of P2P transfers
- Refunds are nonexistent (or very hard to initiate). With no middleman involved, it's difficult to dispute charges after the fact.
- Human errors, like sending money to the wrong recipient, can happen.
- Unpredictability is another downside. ...
- The above also makes accounting much more difficult.
The Risk in Using P2P Payment Apps
Once the money is sent, it's gone. When you send money outside of your financial institution through a peer-to-peer app, it is under no obligation to refund your lost money. Instead, you are bound to the user agreement terms within the P2P app utilized for the transaction.
What is a risk of using P2P? ›
Sharing files using peer-to-peer (P2P) software is efficient. But if you misuse P2P software, you expose yourself to the following risks: Exposing your hard disk to others. Contracting computer viruses. Infringing copyright.
What are two precautions you should take when using P2P apps? ›
How to Protect Yourself from P2P Payments Fraud
- Pay and receive money only with people you know. ...
- Add a PIN or two. ...
- Use a protected payment source. ...
- Security and user experience. ...
- Keep your app up to date. Hackers exploit security vulnerabilities sometimes faster than the security pros can plug them.
Interest Rate Risk
Fixed interest rates are typical for P2P loans. The fixed returns from P2P loans may lose some competitiveness if market interest rates rise. You can reduce this risk by diversifying your investments across several loan durations and keeping an eye on interest rate changes.
What are the weaknesses of P2P? ›
Disadvantages of P2P networks
Lack of centralized control: The absence of centralized control in P2P networks can lead to challenges in managing and coordinating network activities. It can be difficult to enforce consistent policies, ensure data integrity, or coordinate complex tasks across the network.
When using P2P apps one of the drawbacks is that? ›
Cons of Using P2P Payment Apps
Some let you send and receive money instantly, while for others, it can take several business days. Some P2P payment providers charge transaction or service fees. Refunds or disputes may be difficult to initiate, given the lack of middlemen.
They may also inadvertently download viruses and Trojans that infiltrate your system, steal sensitive information, and cause untold damage. If you are on a network, even if just one computer becomes infected, it can spread to all other workstations on the network.
What is one way you can protect yourself when using P2P apps? ›
Here are some strategies to help protect yourself from falling victim to a P2P scam:
- Slow Down and ask Questions. Never be rushed into making a payment. ...
- Resist Pressure. ...
- Research the Seller or Buyer. ...
- Secure Your Account. ...
- Never Share Sensitive Information. ...
- Verify Before Paying. ...
- Report Suspicious Activity.
A P2P network, on its own, is not as secure as a regular VPN. Although it allows direct connection between users, a P2P network may not have the encryption capabilities a VPN has. For example, suppose your company has set up a P2P network with several different campuses across the world.
Are peer-to-peer apps safe? ›
Peer-to-peer payment platforms are generally a safe and quick way to send money to friends and family. But you need to be careful because the transactions can't always be reversed, which also makes them a favorite for scammers.
Can P2P apps be linked to credit cards? ›
P2P payment services, either on a website or mobile app, are linked to a bank account, credit card, or debit card. P2P payment services can be free to use, but some types of transactions may have a fee.
What are the risks of payment apps? ›
Here are a few reasons why you should not store your money on payment apps and how it can pose risks to individuals of all ages.
- Limited insurance protection. ...
- Security concerns. ...
- Transaction errors. ...
- Privacy concerns. ...
- Limited accessibility.
Is P2P lending safe? Peer-to-peer lending is riskier than a savings account or certificate of deposit, but the interest rates are much higher. This is because those who invest in a peer-to-peer lending site assume most of the risk that banks or other financial institutions normally assume.
How secure is P2P? ›
Peer-to-peer payment platforms are generally a safe and quick way to send money to friends and family. But you need to be careful because the transactions can't always be reversed, which also makes them a favorite for scammers.
Are P2P downloads safe? ›
P2P networks are often used to illegally download and distribute copyrighted material, including music, movies, software and games. P2P networks are also used to distribute malicious software like viruses, worms and spyware.
Is P2P high risk? ›
P2P lending is less regulated in comparison to traditional banks and institutions. Though it is the result of modern innovation, it can also expose investors to higher risks. So, it is important for investors to choose platforms that follow regulatory standards and measures to protect both lenders and borrowers.
