The rise of peer-to-peer (P2P) payments on mobile — What makes it such a crucial feature?

You’re finishing up a nice dinner with some friends and the waitress places the check on the table — everyone naturally reaches for their wallets, shuffling through cash and credit cards — until your one particularly tech-savvy pal says, “I’ve got it. Just shoot me a MoneyBeam!”

If you have a bank account and a smartphone, then chances are you’ve heard of, or quite possibly used, a peer-to-peer payment service. PayPal, Venmo, Zelle, Cash App, Apple Pay Cash, and numerous others competitors exist in one of the fastest growing and most intriguing spaces in financial technology: mobile peer-to-peer payments, or P2P. In plain English, these are payments made directly from one person to another.

What’s all the buzz about? Well, mobile P2P is hard to beat when it comes to convenience and simplicity. It is now easier than ever to quickly and safely send someone money, no matter where you are. The emergence of P2P follows a common trend within our fast-paced, instant-gratification, mobile-oriented culture: If you need to get something done, your smartphone can probably do it for you.

As people grow more dependent on their smartphones to accomplish a wide range of daily tasks, the absence of streamlined, hassle-free methods for solving one’s financial needs spurred demand for innovation from an industry that traditionally lags far behind. Music streaming and ride-sharing, for example, are two industries that constantly push for new innovation through companies such as Spotify and Uber. Personal banking, by contrast, has been frustratingly slow to adapt to the digital transformation. People are still not given the best solutions for solving their various financial tasks, but mobile P2P is certainly a big step in the right direction.

The old way to send money gets a refresh

In some ways, it’s surprising that the industry took so long to come up with a modern, mobile solution that allows people to quickly send money to their peers, given that electronic payments between vendors and consumers, and likewise, businesses to other businesses, have been around for decades. However, up until the rapid emergence of mobile P2P applications in recent years, the process of paying back your friends was inefficient and awkward. You basically had the following options:

1. Find a nearby ATM or bank branch and withdraw cash, unless you had exact change on you at the time.
2. Write out a check to the person, which they would then have to deposit. Typical when larger amounts of money were involved.
3. Keep “personal tabs” with your peers and reimburse them in the future. This works well in instances such as buying rounds of drinks when out with a group of people, but that’s about it. Good luck keeping track of exact dollar amounts and awkwardly having to chase down your friends weeks after they forget to pay you back.
4. Initiate an ACH wire transfer between your bank accounts. This is problematic for several reasons: You have to share sensitive information such as your bank account number, it typically takes several business days to process, and it often incurs a fee.

The origins of mobile peer-to-peer

The concept of digital P2P payments only originated in the late 1990s, when internet startup PayPal launched an electronic money transfer service to facilitate e-commerce businesses. eBay purchased the company in 2002, and the service became the most popular way to send money over the internet as people bought and sold various products online. Used cars and vintage sports memorabilia aside, PayPal’s 2013 acquisition of Braintree, the company that owned Venmo at the time, is what really changed the game.

Venmo, along with other standalone, bankless apps such as Cash App from Square, help solve a major pain point for consumers across the world. They break down traditional barriers that made something as simple as paying your friend back for coffee annoying and inconvenient. The mobile P2P solution eliminates almost every painful step in the process: In a matter of 30–60 seconds, you simply open an app on your smartphone, select a recipient, enter the amount of money you’d like to send, confirm with a PIN or some other form of security, and you’re done. The transfer is processed instantly and funds can be deposited into the person’s bank account, typically taking 1–2 days to fully process. Apps such as Zelle, which is steadily being adopted by many of the largest US banks, even feature instant deposit into your checking account.

Mobile P2P becomes mainstream

In just a few years, mobile P2P payments have exploded in popularity, and transaction volume through these services has quickly outpaced the clunky, outdated payment options we used in the past. Inevitably, people have begun to use mobile P2P for a wide range of purchases and personal expenses beyond the basic coffee run. Splitting utility bills or monthly rent with roommates, getting concert tickets with friends, sharing taxi rides, paying for gas, parking, textbooks, fantasy sports, poker game losses, snacks at the movies, and even big-ticket items like airline tickets or vacation costs, are all common instances in which people use mobile P2P apps.

And that’s the beauty of it; people use mobile P2P payment apps for just about everything. Other than certain restrictions over maximum transaction amounts and surveillance of payment descriptions, you can send as many transfers as you want, to whomever you want. Here are some statistics showcasing the explosive growth of mobile P2P:

• 82.5 million people in the United States alone will make at least one mobile P2P payment in 2018, according to research from eMarketer. That figure, which is up from 63.5 million in 2017, accounts for over 40% of smartphone users across the US.
• By 2021, the total transaction volume of mobile P2P payments in the US is expected to surpass $300 billion.
• PayPal reported that it processed $155 billion worldwide in mobile payments in 2017, a 55% increase over 2016. The company also said it reached a record total of 227 million active customer accounts at the end of 2017.
• PayPal-owned Venmo reported that it processed over $35 billion worth of transactions during 2017, seeing its overall payment volume increase 95% year over year with its user base doubling in size.
• Zelle reported that it processed over $75 billion in total transaction volume during 2017, up from $55 billion in 2016.
• The total volume of all mobile payments in greater China, which was early to adopt methods such as mobile P2P ahead of other regions, will reach a staggering $6.3 trillion by 2020, according to estimates from Business Insider and iResearch.

Clearly, people aren’t just using these apps to pay their roommate for a slice of late-night pizza. The unparalleled level of convenience and flexibility of mobile P2P has enabled people to take far greater control over their financial lives, and brings a sense of relief for people when handling day-to-day expenses. Paying people back is no longer annoying — it’s become fun and easy. Many P2P apps have embraced the social aspect of transacting money through digital, allowing people to add captions to their payments and even view a timeline feed of their friends activity. Pizza emojis, smiley faces, and clinking beer mugs are some of the most common labels that people attach to their payments — check out N26’s MoneyBeam study for a thorough breakdown of the trends we found within our own peer-to-peer network.

Let’s face it: for many, it’s practically impossible to envision a world without mobile peer-to-peer services. The ability to quickly and securely transfer money without having to go through unnecessary, complicated procedures has cemented its place in the lives of modern consumers. Even late adopters are recognizing the incredible convenience, speed, and simplicity that mobile P2P services offer and are becoming more comfortable using their smartphones to securely handle their financial needs.

So the next time you’re out at dinner with a group, instead of tossing a bunch of credit cards on top of the checkbook or shuffling through dollar bills, pull out your smartphone. With just a few taps, you and your friends will be on your way.