What Are Peer-to-Peer Payment Apps and How to Develop One
Cash is no longer king. The growing use of online banking has led to a massive decrease a number of cash transactions taking place. This is very convenient when it comes to paying for goods and services online, not so convenient when you’re paying a friend for your share of the dinner bill.
Enter peer-to-peer (P2P) payment systems. Software applications which act as a buffer between people sending and receiving money, either through bank accounts or credit/debit cards.
The internet has made the world a much smaller and more vibrant place, and more and more transactions are taking place online. Going out for a drink with friends often includes people from all over the country (sometimes the world), and activities have become even more diverse.
This means that one person must be the organizer and the “payer”. In this situation, where all members of the party need to pay their way, cash and cheques would be inconvenient at best, completely useless at worst. People just don’t use cash or cheques anymore and are increasingly looking for ways to simplify transactions within their social or family group.
More online transactions mean that people are looking for secure ways to transfer their money, and perceived online culture dictates that it’s far more secure to hand over your email address or username rather than your bank details (even if this isn’t always the case).
Additionally, people don’t have the same access to cash as they did before.
Most if not all their financial transactions take place remotely, many people just don’t carry cash. Going to an ATM is difficult amid the trials of the busy modern lifestyle, with people increasingly favoring a wallet-free way of life. Going to an ATM requires the withdrawal of a minimum amount, and then fiddling around with small change, P2P payment apps remove all the inconvenience.
P2P payments can be used in many social or family situations, for example, lending or paying money to friends, bill splitting between roommates, fuel cost sharing or pocket money.
What are the options and how does it work?
Paypal.me has been the most popular P2P software, going off the back of the original Paypal brand. But the market is growing, and many other companies are vying for a piece of the action.
There are two main types of P2P payment software, those coming from big companies dedicated purely to P2P (for example Paypal.me, Squarecash), and those which have grown from a separate product or service, often in the banking sector.
P2P payment apps that are not affiliated with banks can often be used as wallets, so users can retain a balance within the app which can be applied to payments.
Both types of P2P have certain characteristics in common.
With most of them, users are only able to send payments to people they know, such as friends and family. They are not designed for commercial use, so payment protection is only in place if you have a previous relationship with the other person involved in the transaction.
Despite most transactions showing instantly in the app feed, there is often a delay of 1-3 days between the funds leaving one account and arriving in the other. This gives the payer time to cancel the transaction if they wish but is not so convenient when the money is needed immediately.
Different funding options are available, with different P2P payment systems offering either one or a few options; instant bank account transfers, credit/debit card funding or a dedicated account.
Another growing type of P2P is within social media. Facebook added the ability to pay other Messenger users from within the app in March 2015, and Snapchat launched its payment service, Snapcash, a few months previously. Both of these allow users to make payments from a debit or credit card.
Obstacles for the P2P system
The P2P Payment industry is still in its infancy and there are difficulties which need to be considered.
1. Cash and cheques
People still like using cash and cheques. Cash is a secure and simple way of making a transaction, and although its use is declining, it is doing so slowly. Cash has its own benefits; there are no setup costs, everyone has access to it (even if that means a trip to the ATM) and it is tangible (it’s still difficult for some people to view electronic transactions as “real money”). Whether or not a truly cashless society will ever be possible remains to be seen.
2. Safety concerns
All online transactions carry a risk, and despite the massive trend towards online security, online thieves will always look for ways to get around safety features. The real and perceived threat needs to be fully addressed to give users peace of mind.
With most P2P payment systems, both parties on either side of the transaction usually need to have an account. This can make it difficult for unknown companies to grab a slice of the action as many people already have bulging app folders on their smartphones. In addition, previous loyalty to certain providers must be confronted.
The latest Bank of America study shows the remarkable current acceptance by Millennials and GenX plus the great potential with the Baby Boomers:
How to create a P2P Payment system
There are two main options for creating a P2P payment system, companies can either create it from scratch or integrate an existing system into their service.
Creating a system from scratch is a big task. The system needs to be able to handle big data and exchange it securely and accurately with banks, there is no room for error. This adds a huge amount of expense and expertise to an already tricky process. For this reason, many companies who are looking to add P2P payment functionality to their service look towards integrating an established system into their service.
A third option would be to integrate a chatbot into your platform, enabling users to exchange money between themselves. This requires much less investment and is perfect for smaller companies who need to allow transactions within their service but don’t want the cost and inconvenience of developing and integrating a brand-new system.
The Future of P2P Payments
The use of P2P systems will grow with awareness and the industry will become more competitive as companies realize that users demand the convenience of P2P payment capabilities. Messengers and built-in payment services will grow within the start-up sphere, with the larger companies, who have the experience, expertise, and resources behind them, will continue to dominate the market with full-stack applications.