PayPal’s New Way To Make Pals Pay Back

Everyone has that friend.

The one who says “I’ll get you next time,” or the IOU friend. Except the next time never seems to happen and the IOUs grow into ongoing loans. And sure, the $20 here and the 100 bucks there might not seem like a lot at the moment, but PayPal‘s latest research released today (Sept. 1) shows what the impact of the “sharing economy” really means today.

$51 billion.

The research, “PayPal Money Habits Study” shows, on average, one third of adults have lost a friend due to IOUs, and those friends are typically owed an average of $450. Added up, that’s a whopping $51 billion that people are waiting around for their friends or family to pay back. Turns out that little bit of small debt actually is a big deal.

So what’s driving this massive IOU cycle? PayPal’s research shows that one driving issue is that people get uncomfortable talking about money and even more awkward about asking their friends and family to cough up that money they loaned.

PayPal’s Latest Launch

That’s where PayPal hopes its latest payments solution, PayPal.Me, can fix the endless cycle of tracking down debts, and make asking for money a bit easier by taking out some of the friction.

“PayPal.Me makes requesting money from groups of friends, family and colleagues suddenly so much easier and faster. Rather than following up individually, you can email your PayPal.Me link to co-workers to chip in for an engagement present for another co-worker. Or stop asking each of your fellow bridesmaids for bachelorette party payments and just send a group text message with your PayPal.Me link,” said Meron Colbeci, Senior Director of Global Consumer Product for PayPal.

PayPal.Me is a free, personalized, and direct way to request money from friends, family and colleagues around the globe. The service provides users with a personal link that can be sent to anyone via text, email, instant message, social media, blog or even on the Web to get paid back instantly from the recipient’s bank or PayPal account.

“As we see money going digital and mobile, people need more flexible ways to manage their money. It’s simple – we all want no-fuss ways to pay and get paid back, and avoid awkward IOU conversations,” said Matt Gromada, Director of Consumer Product Marketing at PayPal. “PayPal pioneered sending money digitally 16 years ago, and we are continuing to lead the way with our P2P offerings.”

Now, instead of just having the ability to tell someone to “PayPal me,” the PayPal.Me feature gives that person (or business) the power to directly message them that link to secure that payment in a way that’s a little less forward and a whole lot more efficient.

Starting today, any person or business in the following 18 countries can create their personalized link: the U.S., Germany, the U.K., Australia, Canada, Russia, Turkey, France, Italy, Spain, Poland, Sweden, Belgium, Norway, Denmark, Netherlands, Switzerland and Austria.

“With P2P payments providing the option to avoid wasting time to chase down debts or deal with the friendships going sour over money, the vast majority people around the world are looking forward to forgoing having to rustle up cash or pull out a checkbook when it comes time to split a bill or go in on a present together in the near future,” PayPal wrote in its explanation of the new service.

PayPal’s Survey Results

PayPal’s survey, which took into account the behavior of 4,000 consumers (ages 18-55) in the U.S., Canada, Germany and Australia, also revealed that digital wallets continue to be a popular model for consumers to turn to when it comes to making P2P payments for recouping those IOUs. After all, there’s less friction involved when asking people to tap into a digital wallet versus digging into that physical wallet — or even slower, a checkbook.

The research was conducted to gauge consumers’ thoughts and behaviors around money, specifically as it relates to digital payments. This involved conducting research between May 14-June 2015, as well as a short online study by Koski Research between June 22-28.

Money is obviously an uncomfortable subject for just about any consumer. It’s the reason people don’t advertise their salaries and don’t always flaunt their big purchases. And when it comes to debt, the conversation gets even more unsettling for most to discuss. In fact, PayPal’s survey shows, on average, that nearly 55 percent of consumers were uncomfortable asking for friends to lend them money.

How uncomfortable? Well…

“People are more willing to discuss their sex lives than their finances,” says Dr. Ryan Howell, Associate Professor of Psychology at San Francisco State University and an expert on the psychology of spending, who was cited in PayPal’s research. “Money is still considered an incredibly private, personal topic for many people due to deep-seated cross-cultural stigmas around money.”

[bctt tweet=”People are more willing to discuss their sex lives than their finances”]

More telling is the fact that 50 percent of those surveyed in PayPal’s research said they never got paid back because they were too uncomfortable to bring up the subject.

When broken down by region — regardless of which country the consumers were coming from — everyone said they’d rather be in the situation of having money owed to them (and not wanting to ask for it) versus owing someone money (and forgetting to pay them back). In the U.S., for example, the number who’d rather be owed money was 76 percent vs. the 24 percent who said they’d rather owe money.

In terms of how much consumers are owed, the U.S. was on the lower end of the scale of what was owed, with the average being $449, and Australia being on the high end with an average owed of $707 in small debts. But those small debts certainly add up.

The research shows estimates of the amount of debt owed by country equals: U.S – roughly $37.6 billion; Canada – roughly $2.6 billion; Germany – roughly $9.2 billion; and Australia – roughly $1.9 billion. Added up, that’s where PayPal got that $51.2 billion referenced above.

How Consumers Use And Think About P2P Payments 

PayPal’s study also asked consumers how they use P2P  payments to pay back money, and asked them how to best describe using P2P payments. In the U.S., a majority of consumers called P2P payments timesaving (79 percent), whereas 21 percent called them time-consuming.

Terms used to describe using P2P payments for paying back money:

  • Easy: 77 percent; Painful: 23 percent
  • Liberating: 65 percent; Stressful 35 percent
  • Free: 65 percent; Expensive 35 percent
  • Seamless: 61 percent; Confusing: 39 percent
  • Secure: 57 percent; Unsafe: 43 percent
  • Personal: 53 percent; Impersonal 47 percent

Broken down by generation, the results showed that P2P usage is higher among millennials, which isn’t overly surprising. Millennial usage of P2P payments in the survey was 32 percent, with 46 percent using in the previous week; 42 percent said they’d prefer to pay back using their mobile device (vs. wallet). In Generation X, 25 percent use P2P, with 27 percent having used in the previous week; 35 percent would prefer to pay via mobile phone. And in the young boomers category, 17 percent have used P2P payments, with 20 percent having used the week prior; 23 percent said they’d prefer to pay back a person with a mobile phone.

While many consumers said they’d prefer to use a mobile phone as their payment method for getting paid back, cash is still king — even in the IOU department. The survey showed that in the U.S., 69 percent said they’d prefer to get cash back, versus 23 percent who said they’d prefer a P2P payment. Only 8 percent said they would prefer a check.

“Between friends and family, money lending, borrowing, requesting, and personal preferences for getting paid back is awkward (to say the least). Most people dislike personal checks and while cash is certainly still king, mobile payments are on the rise. In particular, P2P payments are becoming more popular for IOUs, group gifts, and shared travel expenses,” PayPal wrote in its conclusion about the results.