P2P Payment Systems: History, Trends, and Backstage

Peer-2-peer payment systems have already become an inseparable part of daily activity for the majority of smartphone owners worldwide. According to 2021 research, almost 912m people in China, 440m — in India, and 270m — in the US have at least one smartphone. Who still prefers to draw or cash a cheque to carry out a transaction? In any event, this hypothetical scenario may be already used as a foundation to compose a worthwhile fantasy novel! Just imagine a world where you pay a call upon your favourite bank employee thrice a day or even more whenever you need to go Dutch after another business lunch.

Given the technological development, P2P payments are becoming increasingly common across a broad use case, whether you want to split the bill or pay off a debt owed to your friend. As the 2021 Statista Global Consumer Survey reported, 43% of US respondents claimed to have used direct P2P payment services like PayPal within the last 12 months to transfer money to friends or acquaintances. Surprisingly enough, 35% still refer to old-fashioned bank transfers for these particular purposes. After all, many smartphone users who don’t fall into the category of Millenials, Zoomers, or Gen A members may find this technology confusing or even unsafe to employ.

So, what should the P2P meaning reflect for baby boomers or Gen Xers? For starters, a peer-to-peer payment service implies a platform whereby two parties or individuals can directly exchange money without a necessity to interact with a third party as well as other intermediaries. In most cases, not only independent individuals but also service providers on a par with stores prefer such platforms as PayPal, Venmo, or LiqPay to ensure the safety of their transactions with customers. Joke alert: read on if you don’t want your customers to visit a local bank every time you desire to treat a friend to a cup of coffee.

What Is P2P for a Modern Internet User?

The spread of peer-to-peer mobile payments can be easily projected to grow exponentially as a natural course of tech evolution. Any payment system that helps people simplify and accelerate routine procedures automatically brings huge value in light of a constantly increasing pace of life. But from what angle do different generations approach electronic payment systems? Herein may lie the crux of the problem regarding the spread of related technologies. Already in 2018, Forbes published an article on a soaring trend that reflected an inclination of Gen Z members to use automated payment systems more frequently than other generations.

Moreover, the COVID-19 pandemic has significantly spurred the usage of P2P payment services irrespective of age. For instance, fresh research points out that social distancing standards gradually induce Gen Xers and younger generations to adopt various technologies, including P2P services. Therefore, modern Internet users prefer online payment systems because this solution is simple, quick, and effective.

A reasonable question for business owners thinking about adding the P2P function to their product would sound as follows: what’s the point in regularly dealing with cash if your bank users try to lead a socially distanced lifestyle? Since the answer is obvious, be it a Gen X or A member, simplicity and efficiency are things that drive people’s desire to accept what fintech offers. Globalisation and digitalisation have made humanity lazy, haven’t they? Or is it time management and optimisation that dictate the rules for the new normal?

Retrospective Journey to the Roots of Payment Systems

The inception of e-commerce was one of the primary causes underlying the emergence of the US payment systems. It all began with PayPal, a pioneering money transferring solution for electronic payments. More specifically, P2P transactions boomed when eBay acquired PayPal in 2002. Afterwards, this American payment system operated as a secure intermediary between eBay’s sellers and their customers. It’s a natural desire to be willing to hide credit card information from a random seller, though. Besides, most people back then couldn’t open up an online bank account or use a credit card without an official means to facilitate this undertaking. That’s why PayPal proved to become the best solution as a safe intermediary between a client and a service or product provider.

The advent of e-commerce and mobile technology fuelled the demand for ensuring online transactions as well as smoothing the finance-related interaction between suppliers and retailers, sellers and buyers, etc. Precisely, that’s when Venmo, PayPal, and Square stepped in to satisfy a constantly growing demand. The idea of using a person’s smartphone as a digital wallet had floated on the surface ever since the spread of mobile phones, the Internet, and e-commerce.

Today P2P services contribute to the fintech industry immensely, serving as a major actor in both personal and business payment management systems. Concerning the freshest news within the sector, the recently announced eBay new payment system is widely debated in the global media. In its context, PayPal will no longer provide payments for sellers on the platform. What a pity, isn’t it?

How P2P Payment Systems Work Behind the Scenes?

According to Allied Market Research, the international P2P payment market earned almost $1.9bn in 2020, with estimations foreseeing that these figures are likely to grow up to $9bn or even more by 2030. In addition, the use of smartphone wallets and online payment services is projected to increase within the near future. But what innovative technology is concealed behind the bars of simplicity, relative safety, and convenience?

Smartphone apps like Apple Pay or Google Pay act as both a platform and intermediary in the seller-recipient relationship. Their in-built systems store customers’ financial information, most often either on their smartphones or on a third-party cloud server. Any time you’re purchasing something online or making a transaction, your smartphone gains access to the preliminarily stored information necessary for this procedure and asks for authorisation or facial recognition. These types of data are usually associated with banking information like a recipient’s credit card or IBAN number as well as your own account information, phone number, email, password, etc., depending on the context. As a rule, P2P service providers make use of end-to-end encryption technology or tokenisation to ensure the security of transactions.

Many know SWIFT as both a programming language and a code required for money transactions. But it’s also a messaging system and an abbreviation standing for Society for Worldwide Interbank Financial Telecommunications. In other words, it works as a global network that banking and fintech institutions utilise to accurately as well as securely receive or send information. The SWIFT payment system makes things easier by assigning institutions a unique ID code that helps parties identify geographical locations along with other essential information of organisations involved in various payment operations. This system serves as a pain reliever for fintech business owners since everything’s in one place, clearly identified, and unified.

Do P2P Solutions Guarantee Security?

Do you know that the value of fraudulent transactions carried out with the help of payment cards is expected to surge up to $38.5bn by 2027? What this implies is that any means of online payment tacitly requires you to risk security in exchange for convenience, no matter whether it’s a direct P2P payment or another type of financial operations involving a credit card. Similarly, no one is 100% protected from inaccuracy or incorrectly inputted data needed for a direct transaction between peers.

As a P2P service provider, you can power your banking app with either encryption or tokenisation, let alone avail yourself of both solutions at the same time. In theory, it means that your sensitive data isn’t explicitly visible to a potential retailer, attacker, or any other third party, inasmuch as only you, your banking institution, and a specific server have access to bank account information. Another curious fact is that the value of global e-commerce losses to fraudulent actions during online payments amounts to $20bn in 2021. Most online transaction providers, like the Venmo or Square payment systems, offer a sufficient level of security along with privacy, but nobody will ever guarantee utter safety in this multidimensional digital field. It’s still a silent war between convenience on one side and privacy along with security — on another.

What Are the Leading Online Payment Apps?

PayPal

Have you forgotten to pay your pal? This classic means of carrying out online payments has recently been considerably improved. The freshest news informs that the updated all-in-one PayPal app is now equipped with such novel features as earning rewards, dealing with gift cards, paying with QR codes, managing and accessing credit, using buy-now-and-pay-later services, operating crypto, etc. In 2021, PayPal served more than 400m users. Also, this platform allows you to send up to $60k, depending on your account balance and verification. If your PayPal account is linked to the bank, transactions are free. If not, there’s a 2.9% fee.

Venmo

A modern alternative to PayPal, Venmo offers a wide range of design features like personalisation, emoji, and payment feeds. Despite a minimalist UI, this service provides access to any possible P2P payment feature available in the global market. Moreover, the company offers a free debit card. No wonder that Venmo is frequently compared to PayPal, inasmuch as the former is owned by the latter. However, the app charges 3% of each transaction carried out via your credit card, not to mention that Venmo has a 1% fee in case you’re willing to move funds stored at Venmo quickly to your bank account.

Zelle

As a US-based P2P payment app, it’s compatible with most credit unions and banks out there. In return for quick money transfers, Zelle requires customers to download their smartphone app without which they won’t be able to exchange money online. What clients will also need is a recipient’s registered email address or phone number. Still, Zelle comes with one major drawback limiting you to American banks, as the app can’t send money outside the US borders. To note, in the 2nd quarter of 2021, Zelle users sent $120bn via this payment network. Quite impressive, right?

Top 3 Payment Trends Gaining Traction in the Fintech Industry

1) Emphasis on Integrated Payments

Previously, major fintech players differentiated between merchants and financial service providers, whereas the present-day trend encompasses integrated payment systems located directly on a single platform. A seamless connection between systems not only simplifies multiple processes but also accelerates connection as well as maximises efficiency. Let alone better customer experience. This is possible thanks to Payment Initiation Services (PIS), which enables merchants to interact with customers via an easily accessible API. At any rate, this trend brings maximum benefits to both businesses and consumers.

2) Transgenerational Prospects for P2P Systems

Contactless and cashless payment means have become so widespread that P2P systems can now be examined as transgenerational. Especially after the COVID-19 outbreak and subsequent social distancing tendencies, it doesn’t matter anymore whether your clients are tech-savvy Zoomers, Millennials, Gen Xers, or sometimes even Boomers. Nowadays, everyone can and should learn how to squeeze the digital industry to the fullest, getting all benefits offered by service providers.

3) AI- and ML-Powered P2P Payments

It’s not a secret anymore that artificial intelligence and machine learning assist applications in identifying identities and verifying accounts more quickly than ever before. Facial recognition technology, for example, ensures more convenience for customers willing to make transfers privately as well as with even less time spent on verification procedures. Furthermore, AI-powered solutions severely contribute to the mitigation of risks associated with fraud, scams, and other types of cyberattacks. Since the AI market is only projected to grow, with $20bn invested in AI-based startups in 2021, it’s a matter of time when robots will revolutionise P2P payment systems.

Awaiting the True P2P Revolution?

Despite the already-occurring big tech revolution, it’s only expected to shake the fintech domain with genuine innovations. The industry hasn’t yet realised its natural potential to the fullest. Be it Square, Venmo, or Priority Payment Systems, it takes time to embed state-of-the-art technologies into the already-existing systems. Although P2P payment services already work and ensure convenience, the future will by no means be groundbreaking, so it’s high time to exhale, relax, and wait for the true revolution to come. Or lay the ground for it yourself!

Do you know that you can contact DashDevs anytime and turn your concept or fully functioning business into the next PayPal? So don’t hesitate to write to us and benefit from fruitful cooperation!