With the increasing use of mobile devices among global consumers, mobile peer-to-peer (P2P) payments are set to be the next big thing in the areas of fintech and banking. Consumers are getting increasingly accustomed to using their mobiles to handle most of their daily lives. Logically, they now demand this same flexibility and freedom from their payment services when wanting to transfer money to other people. Whether it be splitting a restaurant bill with friends or sending money as a birthday gift, mobile P2P payments can make such transactions faster, easier, and more secure. In order to keep customers, payment and finance must be ready to deliver this latest payment service.

How Do P2P Payments Work?

When making P2P payments, users are most often identified by their email address or phone number rather than by their payment data. Their email address or phone number is instead linked to their bank account. The P2P payments field is growing rapidly, with many different players creating innovative means to enhance the functionality. By 2021, $336 billion worth of P2P transactions are expected to take place. In the US, for example, an estimated 33% of smartphone users used mobile P2P payments at least once a month in 2017. Additionally, one survey found that 47% of US consumers would prefer using a digital payment app versus cash. Many payment companies are taking notice by making P2P payments better integrated into their platforms. For example, both Apple Pay and Google Pay are now offering P2P payments as part of their digital wallets in addition to the contactless payment technology their customers can use in stores.

Other companies have created apps exclusively for P2P payments. Paypal’s Venmo is one such app with an added social layer that allows users to connect with their friends and manage split payments or just make payments to their contacts. The downside of many P2P apps is the requirement that both parties must join the service to complete the transaction. With Venmo, receivers of money who don’t yet have the app will be prompted to join Venmo before they can receive funds. To compare, Apple Pay Cash P2P service has the convenience of being integrated directly in their iMessenger app. However, this requires that both parties in the transaction use an Apple operating system.

Consumers’ desire for universal P2P payments motivates payment providers to create new methods that erase the need for both sender and receiver to use the same P2P platform. For example, when the sender sends the money from their account, they can simply send it to the email address or phone number without needing to have an account already linked on the receiving end. The receiver then gets a notification that somebody is trying to send them money, and is prompted to enter the account or card information where they want to receive it. One example of movement in this direction is Google Pay, which allows P2P payments with an email address or a phone number, regardless of the platform used by the other party. This opens the door for other financial institutions to get in on the action and enhance P2P services.

What P2P Payments Offer

The single most important aspect that mobile P2P payments offer is convenience. Especially for every day, low value transactions, like paying a friend back, mobile P2P payments eliminate the need to collect your friend’s bank info or have cash on hand. Besides, it saves time, as most mobile P2P payments can be completed in the same day they are initiated. There are also security advantages, as you don’t have to actually communicate your bank account number or even which bank you use to the transaction recipient.

These aspects make P2P payments attractive not only for small transactions, but also for larger ones. While it is not yet common practice among mobile P2P users to use the technology for larger transactions, the future shows that there is potential for their use in making more important transactions, such as paying your rent or utility bills.

What Does This Mean for the Payment Landscape?

The next challenge for mobile P2P payments firms is monetizing P2P apps and services that are currently available at no cost. Originally, companies offered P2P payments as a way to get customers interested in their brand, with the hope that afterward they would progress to using more of the brand’s services. However, as P2P becomes increasingly popular, businesses stand to lose income by offering such a useful service for free.

Additionally, the players in the P2P arena are likely to change. To date, the biggest players thus far have been independent P2P apps. However, consumers are also demanding such services from their traditional financial institutions. These financial institutions are already making efforts to deliver P2P payment capabilities to their customers. One example is Zelle, a service backed by over 30 banks and credit unions in the US, which can be accessed from within the banking apps of its partner financial institutions, or by downloading the Zelle app for those whose bank or credit union is not a partner

As the world has entered the mobile era, P2P payments are likely here to stay. The speed, security and convenience that they offer, along with the growing popularity of mobile payments in general, means that customers will continue to demand more efficiency and flexibility from P2P services. Although P2P payments is creating more competition between fintech and banking, it also offers opportunities for all kinds of payment providers to collaborate.