Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Person-to-Person Payments (P2P)

What it is:

Person-to-person payments (P2P) is an online technology that allows customers to transfer funds from their bank account or credit card to another individual's account via the Internet or a mobile phone.

How it works (Example):

There are two general approaches for initiating a person-to-person payment:

In the first method, based on the successful Paypal approach, users establish secure accounts with a trusted third-party vendor, designating their bank account or credit card information to be used to transfer and accept funds. Using the third party's website or mobile application, individuals can complete the process of sending or receiving funds. Users are generally identified by their email address and can send funds to anyone who is a member of the network.

In the second method, customers use an online interface or mobile application (developed by their bank or financial institution) to designate the amount of funds to be transferred. The recipient is designated by their email address or phone number. Once the transfer has been initiated by the sender, the recipient then receives a notification to use the online interface to input his or her bank account information and routing number to accept the transfer of funds. In this method, recipients do not need to have an account with the financial institution of the sender in order to receive a money transfer.
 

Why it Matters:

The increased acceptance of online banking, mobile banking and e-commerce by consumers has paved the way for greater use of person-to-person payments.

After more than a decade of PayPal dominating the market, major banks and credit card companies are finally getting in on the action. This type of capability has long been available in many parts of the world, but major financial institutions in the U.S. have been slow to adopt the technology. It is an important step for banks and credit card companies as commerce evolves beyond the individual-to-merchant relationship to a broader, individual-to-individual exchange.

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