Explaining the Rise in P2P Payments

When people think of payment transactions, they often think of a commercial exchange: a consumer paying a merchant for a product or service.

However, there’s a substantial person-to-person (P2P) payments market that has been around for years. Whether paying back a generous friend or splitting household utilities, P2P transactions are critical to modern-day personal money management, and they’re also growing in frequency thanks to a rise in P2P platforms.

In the past, sending money to a peer meant handing over cash, mailing a check, or organizing a bank transfer. Any of these situations could be inconvenient at best and impossible at worst, so it was only a matter of time before a faster, more convenient way to send P2P payments emerged. Once instant transfers became possible and digital formats became the default, P2P payments became very popular.

This shift is reflected in the data. A new study by Billtrust found that 79% of Gen Z reported using a P2P payment platform (such as Venmo or Zelle) at least once a month, while a third (32%) used these platforms six times or more each month.

Other demographics have also embraced these applications, with 75% of millennials and 69% of Gen X also using P2P platforms at least once monthly. Such vast adoption shows that P2P payments have become the go-to method for transferring money, especially as people and businesses look to reduce dependence on cash.

The Evolution of Instant Payments and Disbursements

Modern consumers consider accessibility and ease to be two of their biggest priorities, especially concerning payments. In the past, splitting the check at the restaurant was easier than paying someone back later. Now, as smartphones and digital applications have become commonplace, P2P platforms are the easiest way to pay.

One of the primary appeals of a P2P method is that the payment is instant; with one click, money disappears from one account and appears in another. This is especially useful for anyone operating on a strict budget, which may partly explain the popularity of P2P among younger consumers; but, of course, instantaneous transactions have clear value for everyone in our fast-paced, modern economy.

Instant payments and disbursements are made possible through advances in technology, namely artificial intelligence and automation. With these tools, financial institutions (FIs) can streamline the decision-making process without compromising quality assurance. This innovation can also help FIs provide real-time updates to their customers, which is critical when managing something as important as money.

Where P2P Payments Fit

While integrating this technology into legacy financial systems is possible, many companies have resisted, possibly due to limited resources or more pressing priorities. As a result, FinTech companies, such as Venmo, PayPal, and CashApp, have come to dominate instant payments. These platforms are digital-first operations that function seamlessly on mobile, making them the ideal choice for tech-savvy consumers.

P2P payment platforms take the benefits of instant transactions and package them in a user-friendly interface. Rather than requiring unique banking IDs or physical supplies, these apps enable users to create personal profiles, search quickly for payees, and send over money in a secure yet intuitive way. The lack of friction, and the option for extra authentication (such as phone number verification), separate this method from all other P2P transactions.

The Future of P2P Payments

Although comparatively new in the market compared to credit card issuers and leading banks, P2P payments have seen exponential growth. A PYMNTS report found that 50% more consumers are aware of instant payments now than they were in 2020, while 46% would choose this option over any other form of disbursement. More importantly, consumers are willing to pay for the convenience — the same PYMNTS study found that a third of respondents would pay a fee for immediate disbursement.

With such growth in a short space of time, it’s expected that P2P payments will continue to rise in popularity. Once they attract an even larger user base, the opportunities for P2P platforms will also expand. Some experts predict that they will launch new services within their apps for greater consumer convenience. Others think that this growth will encourage more traditional institutions to adopt instant payments.

Regardless of how P2P payments grow, it’s clear they have already become a key player in the transaction landscape.