P2P Payments: Benefits, How It Works, and Top Payment Apps

What are P2P payments?

A peer-to-peer (P2P) payment is a financial transaction that allows one person to transfer money directly to another person using a digital platform, often through a mobile app or website. These systems are designed to be fast, convenient, and easy to use, bypassing traditional banking channels like checks or wire transfers.

P2P transactions are characterized by:

• Digital platforms: Common apps include Venmo, PayPal, Zelle, Cash App, and Apple Pay.
• Linked financials: Users typically link a bank account, debit card, or credit card to the P2P service.
• Instant or near-instant transfers: Funds are usually available immediately or within minutes.
• Low or zero fees: Most personal transfers are free; fees may apply for business transactions or credit card funding.
• Mobile-first: Most P2P systems are optimized for smartphone use with simple interfaces.
• Business requirement: Does not need a merchant account to process payments

P2P payment apps vs mobile payment apps

Essentially, a P2P app is a mobile payment app designed for individuals, allowing anyone to sign up for a personal P2P account and send or receive funds. For business owners, a mobile payment app serves as a platform for accepting payments from their customers. It requires a merchant account to sign up.

When a user sends money, the app records the transfer between two in-app balances. The actual bank movement may happen later (via ACH), but users see immediate results, giving the appearance of instant bank-to-bank transfer, even though the funds haven’t cleared externally.

Business mobile payments, by contrast, typically wait for funds to fully settle before clearing or displaying them, especially for compliance and fraud reasons.

PayPal started as a P2P payment app and eventually opened its platform to business owners by supporting merchant accounts. Recently, other P2P payment apps, such as Cash App and Zelle, have also launched business accounts.

P2P payments vs traditional banking methods

P2P payments differ from traditional banking methods by offering faster, more user-friendly digital transfers that do not require account numbers or manual routing.

While traditional banking relies on ACH transfers, wire services, or checks (which can take days and often involve fees), P2P platforms like Venmo or Zelle use app-based interfaces and internal ledgers to enable near-instant transfers using phone numbers or email addresses.

This makes P2P ideal for casual or small-scale payments, whereas traditional methods are typically used for larger, regulated, or institutional transactions.

See: What is Pay by Bank?

Uses of P2P payments

P2P payment apps have become increasingly popular among individual users because it eliminates the need to bring small amounts of cash often used to split bills with friends (at a restaurant), make no-fuss payments to freelancers (like babysitters or buskers), send money to family members, or make informal purchases (like in garage sales).

For entrepreneurs, P2P payment apps are best suited for:

• Small, informal, or early-stage businesses
• Freelancers, side hustlers, and vendors who prioritize simplicity and speed over full-scale accounting

If your business needs financial reporting, compliance support, or formal payment protections, then P2P is not the ideal solution for you.

How do P2P payments work?

P2P payments work by digitally transferring funds from one user’s account to another through a centralized platform that acts as an intermediary. Such as:

When a sender initiates a payment, the P2P application debits their linked funding source (bank account, debit card, or stored balance) and credits the recipient’s account within the app. These systems use APIs and secure authentication protocols (like OAuth and tokenization) to validate identity, authorize the transaction, and ensure data privacy during transfer.

The P2P platform’s internal ledger instantly reflects transaction status for users, even if back-end settlement takes additional time. The actual fund movement between banks is handled through financial networks, such as ACH (Automated Clearing House) for slower, low-cost transactions, or instant rails like:

• Zelle: Connected directly to U.S. banks via their own rails, bypassing traditional ACH delays
• Real-time Payments (RTP): Allows instant movement of funds between participating banks
• Visa Direct: Visa’s real-time push payment platform that enables instant money transfers

However, businesses should note that P2P platforms are optimized for low-value, high-volume transfers between known contacts. And because transactions are personal and usually low-risk, P2P apps apply streamlined fraud detection and fewer compliance layers.

See: Digital Payments: Everything You Need to Know

How to accept P2P payments as a business

Want to know how your business can accept P2P payments? Here are six steps to get you started:

Step 1: Choose a P2P platform

When choosing a P2P payment app for your business, start by identifying your primary use case, such as receiving tips, accepting quick in-person payments, or handling small service transactions. Ensure that the app integrates seamlessly with your bank, and assess its security, transfer speed, and associated fees. Select a platform that not only meets your business needs but also strikes a balance between customer convenience and back-office control.

Step 2: Set up a business account

A business account allows you to properly record sales and fees, ensuring compliance. Go to the platform’s website and download the app. Choose “Business” during setup (or convert an existing personal account if allowed). Then, verify your identity and link your business bank account. Fill out business profile details (e.g., business name, category, EIN if applicable).

When setting up your business account, you may need to enable payment methods in the settings.

💡Here are the ways you can accept payments from a P2P app:

• Username or handle: The sender enters your unique username (e.g., @annadizon).
• QR code scanning: Print and display a QR code that the sender scans to initiate payment.
• Payment link: Create and send a shareable URL that takes the sender to a payment screen.
• Email or phone number: Share your business email or phone number linked to your P2P account.
• In-app request or invoice: Create and send a digital invoice from your P2P app.

Step 3: Customer initiates the payment

To initiate a P2P payment, the customer selects your business by entering a username, scanning a QR code, or searching for it within the app. They then enter the payment amount and can optionally include a note or invoice reference for clarity.

After choosing a funding source (such as a linked bank account, debit card, or in-app balance), they confirm and send the payment. Some platforms, such as Venmo Business Profiles, simplify this process further with embedded “Pay” buttons and scannable QR codes, streamlining customer transactions in just a few taps.

Step 4: Payment processing

Once the customer sends the payment, the P2P platform processes the request by securely debiting the chosen funding source. Depending on the method, the transaction may be instant, as with services like Cash App and Zelle, or take one to three business days to clear.

During this stage, the platform performs encryption and authentication checks to prevent fraud and ensure the transaction is authorized. The business is then notified of the incoming payment, either through in-app alerts or email confirmations, allowing for quick awareness and follow-up if needed.

Step 5: Fund transfer

Once the payment is processed, the funds are credited to your P2P business account balance. Depending on your preferences, you can either hold the funds within the app, which is especially useful for making outgoing payments, or transfer them to a linked business bank account.

Most platforms offer both instant transfers for a small fee and standard transfers that typically take one to three business days. This flexibility enables businesses to manage their cash flow according to urgency and cost considerations.

Step 6: Record keeping

Each transaction is recorded in your P2P account history with key details such as the date and time, payment amount, any customer information provided, and reference or invoice notes. You can issue a receipt or confirmation manually, or use built-in tools available on many platforms to automate this process.

For accounting and tax purposes, most P2P apps also allow you to export your transaction history in formats like CSV, Excel, or via API, making it easier to reconcile payments and maintain accurate financial records.

P2P payments pros and cons

Peer-to-peer (P2P) payments can offer significant benefits for businesses, particularly small and service-based operations, but they also come with important limitations and risks.

Advantages of P2P payments

P2P payments offer businesses significant advantages, including speed and convenience, with instant transfers that help improve cash flow and enable quick disbursements, such as staff reimbursements or contractor payments. They are also cost-effective, often incurring low or no transaction fees, especially compared to traditional credit card processing.

With easy setup via apps or websites and no need for point-of-sale hardware, P2P systems are accessible and user-friendly. These platforms also enhance the customer experience, particularly for younger, mobile-first customers who value fast, flexible payment options.

Disadvantages of P2P payments

While convenient, many P2P platforms aren’t designed for commercial use, and using personal accounts can violate the terms of service. These apps also often provide limited record-keeping and reporting capabilities, making it more challenging to manage taxes or conduct audits.

Businesses also face security risks, such as chargebacks and scams, particularly when they lack built-in verification. Unlike credit cards, P2P payments lack formal dispute resolution, which can erode customer trust.

Security considerations of P2P payments

In 2022, customers of top US banks reported losing thousands of dollars through Zelle scams where fraudsters impersonated bank representatives. Victims received fake fraud alerts and were tricked into transferring funds “back to their own account” via Zelle, which actually routed the money to the scammers. Zelle and the banks initially refused refunds, citing user authorization, sparking federal scrutiny and calls for tighter consumer protections.

💡Peer-to-peer (P2P) payment apps carry several security vulnerabilities, especially because they prioritize speed and ease of use. The most common risks include:

• Unauthorized transactions (if a user’s phone or login credentials are compromised)
• Phishing scams that trick users into sending money to impostors
• Payment reversals or chargeback fraud, particularly in unprotected transactions
• Lack of recourse for victims due to limited dispute resolution options

These issues are exacerbated by the fact that P2P platforms are often used for informal payments, which may lack receipts, contracts, or buyer protection policies and are ill-equipped to handle disputes or enforce fraud safeguards at a commercial scale.

Because of this, businesses that accept customer payments from a P2P account lack the structured vetting found in credit card networks, which makes them vulnerable to scams, spoofing, or identity fraud.

And without formal receipts or contracts in-app, disputes are harder to resolve. Your business is also at risk of inaccurate reporting for tax and compliance.

P2P security checklist

Planning to accept P2P payments? Use this checklist to protect your business when dealing with P2P apps:

Top P2P payment apps

Here are the leading P2P payment providers you can choose from:

PayPal

PayPal is ideal for freelancers, online sellers, and users needing international transfer capabilities. Available in over 200 countries, it offers strong buyer and seller protections, global invoicing, and seamless integration with e-commerce platforms. PayPal’s versatility and security make it a top choice for business-related peer-to-peer payments.

Why I like PayPal: Robust business support with invoicing, payment tracking, and global reach
The downside: Higher transaction fees (typically 2.9% + $0.30) for business payments

Venmo

Best suited for casual, domestic payments in the U.S., Venmo adds a social layer to P2P transfers, letting users include notes and emojis in a public or private feed. With support for business profiles and features like QR code payments and bill splitting, it’s great for freelancers and microbusinesses, though it doesn’t support international transactions.

Why I like Venmo: Offers Venmo for Business profiles with discoverability and QR code payments
The downside: Restricted to U.S. use only, with limited support for advanced business reporting

Zelle

Zelle excels at fast, fee-free domestic bank transfers and is embedded directly in most U.S. banking apps. Designed for simplicity and speed, it bypasses app downloads for many users and offers direct bank-to-bank transfers. However, it does not support international payments or robust business tools, making it best for U.S.-based personal or small-scale use.

Why I like Zelle: Instant, fee-free bank transfers directly integrated with many U.S. banks
The downside: Lacks native business features like invoicing or payment tracking; use depends on the bank

Cash App

Cash App is favored by younger users and freelancers, particularly those interested in cryptocurrency or stock investing. It supports business payments, offers a unique $Cashtag ID system, and allows instant transfers. While it’s available only in the U.S. and UK, its flexibility and additional financial tools set it apart from more basic P2P options.

Why I like Cash App: Offers Cash App for Business with unique features like $Cashtags and crypto payments
The downside: Charges between 0.5% – 1.75% fee for instant deposits; limited to US and UK markets

Apple Pay/Apple Cash

Designed for Apple ecosystem users, Apple Pay and Apple Cash enable fast, secure, and private transfers between iOS devices. While it doesn’t offer formal business tools or international support, it stands out for its seamless Face ID integration, wallet management, and tap-to-pay functionality at retail points of sale, making it convenient for personal payments and in-store transactions.

Why I like Apple Cash: Seamless payment experience for iOS users, especially useful in in-person sales
The downside: No dedicated business tools or analytics, and not suited for managing multiple transactions

Latest trends in P2P payments

Here are the latest trends shaping the P2P payment landscape:

Expansion into business transactions (P2B)

P2P platforms are increasingly being adopted for person-to-business (P2B) transactions. Zelle and Venmo now support business accounts that provide improved transaction tracking. In emerging markets, digital wallets and instant transfer methods, such as Brazil’s Pix, have become popular for online purchases, especially in areas where card ownership is low.

In the US, reports indicate that only 17% of in-store transactions are conducted via mobile, despite 70% of consumers using digital wallets for P2P payments. This presents a significant opportunity for your business to gain a competitive edge.

Integration with social media platforms

Social media platforms are integrating P2P payment functionalities, transforming into “super apps.” For instance, Elon Musk’s X (formerly Twitter) is partnering with Visa to enable users to fund and manage wallets, connect debit cards, and perform P2P transactions directly within the app.

Integration of cryptocurrencies and stablecoins

P2P platforms are incorporating cryptocurrencies and stablecoins to offer faster and more cost-effective transactions. PayPal’s introduction of its USD-backed stablecoin, PYUSD, exemplifies this trend, providing users with alternative digital assets for transactions.

Enhanced security measures

With the rise in digital transactions, security remains a top priority. Platforms are implementing advanced security protocols, including biometric authentication and real-time fraud detection, to protect users against scams and unauthorized transactions.

Cross-border payment capabilities

P2P platforms are expanding their services to facilitate cross-border transactions. For example, Vipps MobilePay introduced cross-border P2P payments, allowing users in Finland, Norway, and Denmark to transfer money seamlessly across borders.

See: What is a Cashless Society?

Frequently asked questions

What is a P2P payment?

A P2P payment is a type of transaction between individuals using a P2P payment app. There are no transaction fees, and payments are nearly instant.

Is Zelle a P2P service?

Yes, Zelle is primarily a P2P service that’s based on partner banks. Users can send and receive nearly instant bank transfers without any additional cost.

Is Venmo a P2P payment?

Yes, like Zelle, Venmo is also a peer-to-peer payment service. However, Venmo supports linked credit and debit cards in addition to bank accounts.

Is PayPal a P2P transfer?

Yes, fund transfers between personal accounts are P2P payments.