P2P Payment Potential: Promoting Convenience While Protecting Consumers

Peer-to-peer (P2P) payments — enabled by popular apps such as PayPal, Zelle and Venmo — have quickly emerged as a go-to method among individuals for conducting everyday transactions. Recent studies highlight their ubiquity, with one revealing that 93% of Americans report using P2P services. The appeal of P2P payments lies not only in their convenience but also in their speed — offering the potential of being completed in real time. When asked what they value most about P2P payments, most consumers cite the speed with which money can be transferred from a P2P app to a user’s account.

However, despite their benefits, P2P payments also pose inherent risks. Many consumers are growing wary about fraud when it comes to P2P payments, especially considering the irreversible nature of these transactions once initiated. To address these concerns and foster greater trust in and adoption of P2P services, banks and financial institutions (FIs) should prioritize the incorporation of advanced technologies like artificial intelligence (AI) and machine learning (ML) into their platforms. By leveraging the sophisticated tools and technology, FIs can bolster their security defenses to detect and thwart real-time threats and effectively mitigate fraud, thereby helping to ensure that their customers are safe and satisfied when using their platforms.

Consumers Demand P2P Payments From FIs

P2P Fraud Worries Hinder Adoption

Countering Fraud in P2P Payments

An Insider on Meeting Consumers’ P2P Payments Demands

Driving P2P Usage by Bolstering Security and Trust

Consumers Demand P2P Payments From FIs

P2P payments are widely used by consumers, and most of these apps are provided by third parties like Venmo, Cash App and Zelle. However, consumers are increasingly pushing for FIs to provide these payments directly.

P2P payments are seeing record levels of popularity worldwide.

Almost 82% of consumers in Brazil send money via P2P methods, placing them second only to consumers in India, where nine in 10 use P2P technology. Meanwhile, in the United States, 51% of consumers use P2P payments, as do 52% of residents in the United Kingdom. While these payments are commonly associated with individuals paying other individuals, they serve a broader range of purposes, including purchasing from small retailers, paying utility bills and making rent payments.

51%

of U.S. consumers use P2P payments regularly.

Speed is king when it comes to picking a P2P payment app, users say.

According to one survey, P2P payment users prioritize transaction speed as the most important feature when selecting a digital payment app. Older generations such as baby boomers and Generation X favor speed more than their younger counterparts. However, all generations agree that transaction speed is the most important factor compared to considerations such as transfer fees, brand trust, usage among businesses and the ability to split transactions.

The survey also showed that PayPal is the most widely used app among respondents, at 85%, far outpacing the rest of the pack, which includes Cash App (54%), Venmo (38%) and Zelle (28%). The popularity of PayPal can be attributed to its transaction speed, alongside its name recognition and earlier entry into the P2P ecosystem compared to its competitors.

P2P Fraud Worries Hinder Adoption

While P2P transactions have proven incredibly popular, there are still many holdouts who cite a fear of fraud and cybercrime as their main barriers to adopting these systems.

Zelle and Venmo are being targeted by scams and fraud.

$2B

Amount lost to impostor scams in 2023

P2P payment fraud often manifests as impostor scams, where bad actors impersonate friends or acquaintances to deceive victims into sending them money. This deceit can be especially dangerous when perpetrators pose as an FI, coercing victims into divulging sensitive account details like login credentials. Scammers can then use this information to gain access to victims’ other accounts. The Federal Trade Commission (FTC) estimates that Americans lost more than $2 billion to impostor scams last year, with many of these attacks occurring through P2P payment channels.

28% of P2P payment users say they have been scammed.

Generation Z and millennials were the consumers most vulnerable to P2P app scams, at 47% and 38%, respectively. Meanwhile, 21% of users say they have received cash from the wrong sender. This type of error might appear innocuous on its face, but it is often the initiation of an intricate scam tricking users into laundering money from stolen credit cards.

Of the P2P users involved in scams, one in five reported losses exceeding $5,000. These alarming statistics have prompted many users to boycott P2P apps until they can be fully protected from scams and fraud.

Countering Fraud in P2P Payments

FIs are acutely aware of the fraud dangers associated with P2P payments, as well as the potential revenue losses that may result if these risks deter customers. Therefore, implementing advanced technologies such as AI and ML will be crucial to securing P2P transactions and fostering trust among users.

Seven in 10 FIs leverage AI to fight financial fraud.

A recent PYMNTS Intelligence study reveals that more than 40% of FIs surveyed are experiencing an increase in fraud incidents, with 71% now employing AI and ML to counter fraudsters. This adoption marks a notable increase from 2023, when 66% of banking executives reported using AI and ML for fraud prevention — a significant rise from 34% in 2022. While most banks use in-house tools for this purpose, third-party tools are nearly ubiquitous. In fact, eight in 10 FIs report using a combination of in-house resources and third-party technology to fight fraud, while the remaining 20% rely exclusively on third-party technology.

71%

of FIs now use AI and ML to fend off fraudsters.

Cloud-based fraud detection systems are showing significant promise.

PYMNTS Intelligence found that among the FIs leveraging cloud-based fraud and financial crime prevention platforms, 79% report confidence in their ability to secure real-time payments. Additionally, 84% of FIs report increased confidence in securing real-time transactions using rules-based algorithms, while 80% express similar confidence using AI and ML technology for these purposes. All of these systems could be applied readily to P2P transactions, improving consumers’ trust in the safety of their payments.

An Insider on Meeting Consumers’ P2P Payments Demands

PYMNTS Intelligence interviews Matt Freeman, senior vice president of digital payments at Navy Federal Credit Union, about what customers need from P2P payments and how FIs can meet these needs.

Convenience is overwhelmingly the number-one [priority]. Security is also a high priority for our members — they do see a material difference between bank-owned services like Zelle and the FinTech apps that are out there.”

Matt Freeman
Senior vice president of digital payments

FI customers are looking for speed, convenience and security in their P2P payments.

According to Freeman, the top priority for members is convenience. Consumers are accustomed to seamless experiences in every other part of their digital lives, and they expect their P2P payments to be just as smooth.

“When we talk to our members, convenience is overwhelmingly the number-one response,” Freeman said.

Security is also highly important and often influences which businesses consumers choose to bank with, whether it be a traditional FI like a bank or credit union, or a newer alternative like a FinTech.

“Security is also a high priority for our members — they do see a material difference between bank-owned services like Zelle and the FinTech apps that are out there,” Freeman said. “They really connect to the safety and soundness of working with an institution that [they] already have relationships with — and you feel more secure transacting with the credit union or other financial institutions as a consumer.”

Consumers have valid reasons for choosing FIs over FinTechs for their P2P payment needs.

Chief among these reasons are the more stringent regulations governing FIs compared to FinTechs. This regulatory oversight can provide consumers with peace of mind, knowing that their funds are backed by the federal government.

“Banking laws and regulations hold financial institutions to a much higher standard than most FinTechs,” Freeman said. “When you think about everything from what data is used to how it’s stored to how secure are the transactions themselves, this is just [the] bread and butter for financial institutions, and consumers know that.”

Leveraging FIs also eliminates the need for intermediaries when moving funds between banks, Freeman noted. There is no need to manually transfer funds from apps to bank accounts if the bank itself is supplying the app.

“By using services like Zelle and going bank to bank, you’re shortening the number of steps necessary in order to make the payment, to move those funds, to withdraw that cash,” he said. “While you can withdraw money from your Venmo account and put it into your checking account, those often come with fees or delays that you can avoid just by using a service like Zelle.”

P2P payments face several security threats that FIs must address.

Freeman said the most dangerous threats are those that exploit human vulnerabilities — social engineering or impostor fraud, for example — rather than elaborate digital hacks. Both users and employees are susceptible to these schemes.

“[FIs have] continuously made investments in overall fraud monitoring and specifically account authorization controls,” Freeman noted. “Because of that, fraudsters have started to lean on the human element for their scams. Phishing schemes, for example, socially engineer [FI] members and the users in the banking system more broadly to [bypass] those authentication controls.”

Smart friction is the name of the game for defeating fraud.

Friction is typically undesirable in P2P transactions, but the right friction applied at the right time can potentially prevent a fraudulent transaction from occurring altogether. Integrating AI, ML and open banking protocols offers an ideal solution for introducing smart friction to P2P transactions, effectively deterring fraudulent activities.

“We have various models that are used within our fraud teams that leverage AI and machine learning, and we continue to expand our open banking strategy,” Freeman said. “When members are looking to make transfers to external accounts, we use open banking connections to verify the details and to ensure that we’re comfortable both on our side of the transaction and where the funds are going.”

Driving P2P Usage by Bolstering Security and Trust

While P2P payment platforms are becoming increasingly popular for their convenience and efficiency, their use still poses a risk of fraud. By implementing various security strategies and measures, FIs can effectively reduce fraud on P2P payment platforms, thereby fostering greater customer trust and encouraging more frequent use.

Leveraging advanced technologies such as AI and ML can significantly bolster fraud detection capabilities. These tools can analyze vast amounts of transaction data in real time to identify suspicious patterns or anomalies indicative of fraudulent activity, as well as continuously refine their algorithms based on evolving trends and emerging threats.

Enhancing authentication processes can also lessen the risk of fraud and scams. One effective approach is to implement multifactor authentication mechanisms. This involves requiring users to provide a combination of something they know (such as a password), something they have (such as a mobile device for receiving authentication codes), and something they are (such as biometric data like facial recognition). By adding multiple layers of security, financial institutions can significantly reduce the likelihood of unauthorized access to accounts and transactions.