[GOTCHA] P2P Payment Systems

Category: Finance

Recently, I paid a contractor via the Square Cash peer-to-peer online money transfer service. We’d done this many times before and payments had appeared in his bank account instantly after I sent them. But this time, something went wrong. Let's take a look at some of the built-in 'gotchas' in Square, Paypal, and other popular P2P payment services...

"You've (Almost) Got Money!"

Both of us saw his money request marked as “paid” in the Square Cash app. I could see the money had been withdrawn from my checking account. But the money was not in his bank account even after several hours had passed. We were both baffled.

It turned out that my friend had recently changed his Square “Cash Out” preferences so that deposits to his Square Cash account were automatically transferred to his bank account overnight instead of instantly. He did this to save the 1% fee charged on instant transfers. But he had forgotten doing so. The money appeared in his bank account first thing the following morning.

That “memory fault” could have cost my friend a lot of money in NSF fees, if he had planned on my payment credit arriving in time to cover outstanding debits arriving on the same day.

P2P payment systems

Why does Square complicate its simple money-transfer service with this totally unnecessary option? Profit, of course; if Square deposited all payments instantly, it would have nothing for which to charge you that one percent fee. On the other hand, charging everyone a fee to receive money all the time generates harsh feelings, as Paypal well knows.

If fact, Paypal has boldly copied Square’s fee/no-fee paradigm virtually byte-for-byte in its Paypal.me service, along with the admirably simple parts of Square’s Cash app. Introduced in September, 2015, six months after Square Cash debuted, Paypal.me enables you to request money by simply sending an easily remembered URL, e.g., https://Paypal.me/BobRankin/5. When recipients click that link (which includes both the recipient and the dollar amount) a wizard guides them through a choice of options for the payment. That’s where things get complicated.

No fee is charged to sender or recipient on payments designated as being between “friends & family.” No fee is charged to the sender of money if the source of funds is a bank account or Paypal account. Funds charged against one’s credit or debit card incur a fee of 2.9% plus $0.30 per transaction.

If the recipient is a Paypal business account, it will be considered as “goods and services" and they will be charged a fee of 2.9% plus $0.30 per transaction, regardless of the sender’s source of funds.

If you are not confused yet, Paypal has the solution: Venmo! I am confused about why anyone would use Venmo. Just look at some of its “features:”

Money transfers are not instantaneous and can be canceled for a couple of days after they are “paid.” Scammers have turned this feature to their profit by paying for goods and canceling payment after the goods have been received or shipped. And Venmo does not offer buyer or seller protection, a strong selling point of Paypal and Paypal.me.

But that's not the most surprising thing about Venmo. By default, Venmo makes all of your transactions visible to anyone on the Internet, in two ways. The first is the real-time scrolling list of transactions on the Venmo home page, which anyone can see. The second is your Venmo profile page, which shows your last five transactions. The transaction amount is obscured, but still I do not want it generally known that I have paid or been paid by anyone. It’s just not public information. You can opt out, but many people don’t even know about this stupidity.

Despite these alarming shortcomings, Venmo handled some $12 billion worth of transactions in just the first three months of 2018. That’s what really confused me, until I remembered reading that Venmo is most popular among millenials, who do not seem to have the same privacy concerns as older users.

These are just two of the most popular peer-to-peer payment systems. They are unnecessarily complicated and full of “gotchas” for the unwary. If you use a P2P payment system, or you know of other P2P payment systems and their shortcomings or virtues, please comment below.

Your thoughts on this topic are welcome. Post your comment or question below...

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Most recent comments on "[GOTCHA] P2P Payment Systems"

Posted by:

Marge Teilhaber
27 Aug 2018

Good to know about this stuff, Bob. Thanks. I regularly use Google Pay to pay my proofreader. It's checking account to checking account, no fee. I have no idea how long it takes for her checking account to show the deposit but I'm sure it's not an issue. I get an email about the payment within minutes, which of course gets saved as a PDF in my 2018 tax detail folder.

Posted by:

27 Aug 2018

What about Bitcoin? Is that not a viable option?

Posted by:

27 Aug 2018

Try Zelle. Works great using only a cell phone number or email address. www.zellepay.com I use it all of the time with little to no issues.

Posted by:

Ken Mitchell
27 Aug 2018

Venmo is for people who like to brag about the great restaurants you're eating at and the fancy vacation places you're at. It is primarily a venue for trying to make other people jealous about the glorious life you're leading.

Except that, most people AREN'T leading glorious and enviable lives, and having your McDonalds purchases visible by default simply makes Venmo users look silly. Since most people do NOT like to look silly.....

Posted by:

27 Aug 2018

Zelle also has provides NO protections for senders or receivers. I got a payment to my cell phone # by mistake and was contacted by the sender. I told the sender that I wanted to return their money but I had no way to verify the person calling was the sender, so I asked her to call her bank or Zelle to reverse the payment. A few days later they called me back and said they would file charges of theft if I didn't return the money in 24 hours. I called my bank and Zelle support and was told there was nothing I could do. The sender's bank is the only one that has the information to reverse the payment but they don't have to do this for their customers. This is used by bad people to scam people out of their money! Do not use these services...

Posted by:

Jay Gerard
27 Aug 2018

I have used Quicken as my "checkbook" for several years. And I use Quicken Bill Pay for most of the bills and regular accounts (like the electric company) that I have. I have *never* had any problems with this setup. Yes, you have to pay for Quicken, but that's just once (plus an occasional required update). But I have been using computers in many ways for more than 30 years, and my handwriting has been taken over by the keyboard. I.e, I'm glad that I rarely have to actually create a handwritten check!

Posted by:

27 Aug 2018

Google Pay is incredibly easy to use and quick. I've tried most of the others but Google's service outperforms all.

Posted by:

27 Aug 2018

Jay Gerard, don’t get suckered into buying Intuit’s “required” updates for Quicken. I’ve been using Quicken99 since, you guessed it, 1999, and it’s been working perfectly well to track all of my accounts. My bank’s bill-pay service has also been flawless, and free. There’s no need to pay Quicken another dime.

Posted by:

28 Aug 2018

Um, I use a credit card. I know I'm like a dinosaur, but it seems easy enough for me.

Posted by:

David Hakala
28 Aug 2018

I am a fan of Square for receiving payments from trusted clients. The record turnaround time from emailing an invoice to cash in my bank account is 46 seconds!

I've used Paypal since at least 2000. I like its Buyer Protection when dealing with strangers. I've also been shielded from scammers when I sold things that were falsely reported as "not delivered" or "not as described."

I use Venmo only to pay my landlord. Haven't checked to see if his rental business - all of which violates local zoning laws - is "on the street."

It's been ten years since I bought paper checks. They ran out three years ago. On the rare occasion I need one, I get a laser-printed sheet of four "temporary" checks at my credit union branch in about one minute.

Posted by:

Daniel Wiener
28 Aug 2018

I pay almost all my bills via my Premier America credit union's free Billpay service. On rare occasions I also use Paypal. And if I have to transfer money to someone I can use the credit union's free PopMoney service. Although I almost never have to write a check, I have to admit that I am starting to run low on blank checks; I only have enough to last another 2 or 3 years. (Thank you, David Hakala, for the suggestion of getting laser-printed temporary checks from my credit union. That would constitute about a 6 month supply.)

As far as Quicken is concerned, I got fed up with having to buy updates every 3 years when I'm perfectly satisfied with the existing features (I now have Quicken 2013). The only reason I felt pressured into buying updates was to be able to download my credit card purchases from my bank (Citi) instead of manually entering each one. But I came up with an adequate work-around:

I export the month's credit card charges from my bank's web site in QIF format, which is easy and only takes seconds, and which downloads to my computer. Then in Quicken I do a File Import of that QIF file. However, Quicken blocks the import of that data directly into a banking or credit card account, by refusing to support automatic downloads in older Quicken versions. Instead I created a "Liability" account, in the same category as a mortgage account, and I import the QIF file into that account; Quicken lets you get away with that. Then I highlight all of the items in that liability account, right-click the mouse, and select "Move Transactions". I select the bank account that I wanted the data downloaded to in the first place, and everything gets moved there. Sure it takes a few extra mouse clicks, but the whole process can be done in less than a minute, and it sure beats manually entering a hundred items each month. And it sure beats paying $40 or $50 bucks every three years for a new version of Quicken filled with new features that I have no interest in.

Posted by:

Dorian Glass
28 Aug 2018

Thanks greatly for this critical and important information, Bob.

I had been contemplating methods such as this for payment to send / receive for a while now. This has certainly provided some necessary pre-understanding towards utilising such sources of money transfer.

This is good! Keep up the excellent articles!


Posted by:

Ross Cameron
29 Aug 2018

I`ve been using Paypal for over a decade with superior service. No problems with purchases and their resolution department has always been prompt and fair. Can`t comment from a sellers POV as I don`t sell. Yet.

Posted by:

29 Aug 2018

My tenants started by paying me with Chase QuickPay - which became ClearXchange - which has also now gone out of business, with Chase recommending Zelle as the alternative. I looked them up and found reviews that made me very wary - this, combined with the fact that unless your bank also uses them (mine did not at the time), all transactions have to be done by cell phone app - unless this has changed, there is no direct web interface to that service. Not good enough: believe it or not, not every single person does have a smartphone. I suggested PayPal (not Venmo) and that has worked for us with no problems so far.

Posted by:

29 Aug 2018

Thanks Marge T. and Greg for your posts. Will research G-Pay. And my bank offers Zelle. So NO to Zelle. NO to Venmo. Last week i offered to help pay for funeral flowers. My sister-in-law doesn't use P-Pal. Thanks for this article, Bob.

Posted by:

29 Aug 2018

Peer-to-peer? There is nothing "peer-to-peer" about any of these payment services. These are actually "fifth" party services (you, your bank, the payee, the payee's bank, and the P2P interceptors ). The closet thing to a peer-to-peer payment method is actual through your own bank's bill pay service (which is free). I haven't checked, but it's only a matter of time until someone complains about being hacked because of using a P2P service, a service to which both parties give their financial data and then use the most insecure method (cell phone over wifi) for transacting money. What could go wrong?

Posted by:

Sarah L
30 Aug 2018

Paypal is not my pal. I used for paying someone for work done in another country, and that transaction worked perfectly. The next transaction was someone thieving Paypal from my account. Paypal caught it. Then another thief, and I wanted to be out of Paypal. They have never closed my account, wanted more personal information to close the account than I had used to open it. So I called the credit card company who cancelled the card number I had given to Paypal, and in two days mailed me a new card with a new number. So the Paypal account has a dead credit card number and still will not let me cancel, and sends me e-mails about terms and conditions. I will keep writing checks instead.

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