More people than ever are using peer-to-peer (P2P) mobile money services such as Zelle, Venmo, Square Cash and Google Pay to make payments. Whether to split a restaurant check or pay the babysitter, these services offer the convenience of quickly and easily transferring money.
According to research from eMarketer, 82.5 million people in the United States will make at least one P2P mobile payment in 2018. That accounts for over 40% of all US smartphone users and is up from nearly 63.5 million people in 2017.
Though the original purpose of P2P was to make it easy for friends and family to pay each other, these services are increasingly being used to pay for a variety of goods and services. People are using P2P to pay their kids’ daycare, the hairdresser or when purchasing a used bike through an online marketplace. In fact, a growing number of small businesses now offer the option for customers to pay via a P2P service.
For users, the payment process is a few easy clicks. The P2P service can be linked up to a person’s bank account or payment card or they can store a balance until it’s ready to be spent. When they want to pay someone, they simply type in the recipient’s mobile number or email address and then authorize the payment. Security features such as entering a four-digit PIN every time the app is opened can also be activated.
A Looming Concern
While the convenience of P2P payments is clear, we think there’s a big wave of fraud and disputes on the horizon. Why? Because, most of these services currently offer no dispute-resolution process or consumer protections. This means people risk losing their money if something goes wrong — such as someone not receiving the promised good or service or a payment mistakenly being sent to the wrong mobile number. In these situations, they have no simple recourse — no straightforward way to request their money back.
Already, a number of people have lost hundreds, even thousands, of dollars to scammers.
Contrast this to credit cards, which provide the cardholder total liability protection. If a consumer pays for a product and never receives it, or if their card is stolen, they can dispute the charges and will be issued a full refund until the dispute is resolved.
Here’s an example of the concerns it presents: Let’s say a father pays his son’s $1,800 preschool bill using one of the most popular P2P money-transfer services — a payment option the daycare promotes as a convenience to parents. After the money is successfully transferred out of his account, the daycare leaders say they did not receive the money. It becomes apparent the father had entered the incorrect mobile number. When he calls the P2P platform provider to get his money back, he is told he has no recourse other than to either call the cops or explain the situation to the daycare to see what solution they can offer.
To be fair, these services’ disclaimers clearly state that they are not liable if the transaction goes awry and warn against using them to pay people they don’t know or for goods and services. Still, most people don’t realize they have no way to dispute transactions or get their money back until it’s too late.
What Needs to Be Done
The future of P2P payments clearly relies on people having a positive experience with these services, and that includes being confident that, if something happens, there’s a formal dispute-resolution process protecting them. When someone has a bad experience — either with an outright scam or simply not being able to get a refund — they’ll stop using these P2P platforms.
PayPal, one of the earliest P2P services, has already resolved these types of issues by creating a formal dispute-resolution process. But many P2P payment services have yet to do so. Rather than wait for regulators to step in — which could take time — or create policies and controls that limit the benefits of the services, there are solutions available today that can be adapted to support P2P providers and help merchants avoid, or at least better navigate, the sure-to-grow wave of disputes.
Ideally, P2P mobile payment services will tap into a solution providing access to real-time information that improves the dispute process while reducing fraudulent transactions. Similar to how Ethoca Eliminator provides a solution based on collaboration between merchants and issuers, a comparable approach could prove valuable for P2P mobile payment services. If a P2P payment provider can instantly access detailed account history, itemized receipts and location data, it can reduce fraud, resolve disputes and ultimately create a positive user experience. Moreover, banks could expedite and automate the reciprocity agreements already in place between them that require similar human involvement to complete.
P2P mobile payments offer huge promise and only seem poised to grow significantly in the future. But their success hinges on these services offering consumer protection and giving businesses a clear way to manage disputes and reduce fraud.