The Pros and Cons of P2P Payments in Retail

Peer-to-peer (P2P) payment platforms aren’t just for splitting restaurant tabs or paying for piano lessons anymore. Platforms like Venmo, Cash App, and Zelle took off as a convenient way to negotiate informal electronic transactions, with many consumers liking them enough to use them as their primary payment method.

Consumers love these platforms because they’re cheap, convenient, and full of features that help them manage their money, but they also offer benefits to retail merchants as well:

• They’re less expensive than other payment methods. As interchange rates — aka swipe fees or transaction fees — from debit and credit cards continue to eat into merchant margins, the comparatively low transaction fees of P2P payments are extremely attractive. Additionally, the P2P market is competitive, with rates staying low as Venmo, Cash App, etc., battle for market share. Though merchants have objected to the size of interchange rates for years, they've remained largely unchanged, though there were some increases and decreases in different categories in the spring of 2022.
• They’re simple to implement. It typically takes only a few minutes to register for an account. No special coding or other technical knowledge is required. Once the account is registered, the transferred funds go directly from the customer’s account to yours. Another advantage over credit and debit cards is that P2P payments don’t require a special terminal or other equipment. You can initiate payments in a variety of different ways, with push requests and QR codes, as well as with other convenient prompts.
• They don’t expose personally identifiable information (PII). With data breaches a major concern to all retailers, P2P platforms can provide some peace of mind. Unlike other types of payments, P2P platforms do not need to transmit the customer’s name, address, account number or any other sensitive personal information to the merchant, mitigating the consequences of a security breach.
• They’re more accessible than other types of payments. Offering P2P payment options can open your store up to entirely new audiences as the popularity of P2P payments grows. According to a Research and Markets report, P2P payments are expected to grow from $2.64 billion in 2022 to $4.93 billion in 2026, a compound annual growth rate (CAGR) of 16.9 percent. P2P platforms are popular internationally and among consumers who avoid credit cards out of choice or necessity.

While P2P payments offer considerable benefits for merchants, they don’t come without some serious potential drawbacks that retailers need to consider:

• There are fraud and scam risks. Though P2P platforms protect PII, there are still risks. Someone who steals an unlocked phone may be able to make numerous unauthorized purchases with a P2P app before the victim can get it blocked. Just as with any other form of payment, there are countless phishing and social engineering scams designed to trick people into transferring funds to fraudsters.
• A formal dispute process hasn’t been established. Unlike other more established forms of payment, there has yet to be a defined way to remedy fraud and errors. Even though merchants avoid interchange, the card providers argue that one of the reasons for the fees being what they are is they have an established chargeback and fraud dispute process. There's no such process in place for P2P payments.

As P2P payments continue to grow in popularity, merchants should carefully weigh the pros and cons of accepting them in addition to other forms of payment. Consumers prefer choice and may not patronize online or virtual stores that don’t accept certain methods of payment. By evaluating the risks as well as the benefits of P2P payments, retailers will be better positioned to offer their customers the choice that they're increasingly demanding today.

Suresh Dakshina is the co-founder of Chargeback Gurus, a provider of chargeback prevention and recovery solutions.