In an increasingly digital world where convenience and speed are paramount, instant peer-to-peer (P2P) payments have emerged as a financial game-changer.

Simply put, a peer-to-peer (P2P) payment is the direct transfer of money between two parties who are both users of a P2P service or platform or app. Because both parties are on the same platform, the initial transfer of money involves no bank or middleman, making it fast and affordable, among other benefits.

In what follows, we dive deeper into the world of P2P payments and how they can benefit you as an individual and/or business owner. We’ll consider:

1. What are P2P payments?
2. How do P2P payments work?
3. 10 benefits of P2P payments for individuals and businesses
4. Concerns about P2P payments
5. How to access safe P2P payments in Kuwait

[Do you want to send and receive money instantly in Kuwait? Download the Kem app for fast, convenient, and affordable customer-to-customer and customer-to-business P2P payments.]

1. What are P2P payments?

As the name implies, peer-to-peer payments (or person-to-person payments) are a type of electronic funds transfer or mobile payment that involves direct transfers of money between two parties who are users of the same platform.

For individuals and businesses

These parties can be individuals in which P2P payments can be used for funds transfer between family and friends either as gifts or as payments for some services.

However, P2P payments can also be used for consumer-to-business transactions where individuals can purchase goods and services from businesses and make a transfer to the business through the P2P platform.

P2P payments vs bank transfers

Unlike bank transfers (another form of electronic funds transfer), P2P payments do not require details like account number, account name, and bank name. Users can find recipients on the P2P app through their email addresses or phone numbers.

Also, unlike bank transfers, P2P payments do not go through intermediaries (sender and recipient are on the same platform). The transfer of funds is direct, from one user to the other, and it can be completed within seconds.

These two features also distinguish P2P payment platforms from mobile banking solutions offered by traditional banks (another form of mobile payments or digital payments).  

Requesting money on P2P platforms

P2P payment platforms also have a “request money” feature whereby one user of the platform can send a money request to the other. Individuals can use this feature to request money from family and friends while businesses can also use it to request money from their clients (in lieu of or in addition to an invoice).

Businesses can also use this QR code technology to request payment from consumers. It is especially useful for in-store businesses like retail stores and restaurants to collect payments at the point of sale.  

Domestic and international P2P payments

While many P2P payments providers are limited to domestic (intra-country) transfers, some like Paypal, Wise, Cash App, Zelle, Square, Venmo, Apple Pay, and Google Pay support international transfers.  

However, it must be emphasised that international P2P payment platforms are not necessarily superior to the domestic ones.

An international P2P payment platform may not have good enough coverage in a particular country, thus making it largely irrelevant for domestic usage. This is because the usefulness of a P2P platform depends on whether the people you transact with regularly are also on it.

Likewise, domestic P2P payments tend to have zero or lower fees when it comes to adding and withdrawing money (more below).

Having touched on the basics of P2P payments, let’s consider how they work in practice.

2. How do P2P payments work?

To better understand P2P payments, consider this example:

A and B are users of the P2P payment platform Z. Suppose that A wants to give her friend, B, KD 500. Let’s consider the steps that B will take:

Sending money

Step 1: Add money

If A’s balance on Z is empty, she will need to add money to her balance. Most P2P payments support bank transfers (from a savings account or checking account), debit or credit cards, and even other P2P platforms (Kem, for example, supports adding money with Apple Pay).

Adding money through bank transfers is free on most platforms while a fee will be paid for using debit or credit cards. On a platform like Kem, both are free (except if the card is issued outside of Kuwait).

However, some P2P payments apps don’t require that users add money to their balances before they can send money. Instead, users can choose to add the money from their saved payment methods at the very point of sending money to other users. So, A can just proceed to step 2 and add the money at that stage.

Step 2: Transfer funds

Now that A has sufficient money on the platform, she can transfer the KD 500 to her friend, B.

As said above, this transfer can be completed in seconds. Also, these P2P transfers are often free on most platforms.

Again, what is needed is the phone number or email address of the recipient. If A had sent money to B before, she can more easily send money to her subsequently by just selecting her profile among the recipients.

Receiving and sending money

To continue our illustration, imagine that B received a money request for KD 300 from C (via QR code), her younger brother who is also registered on Z.

In this case, all B needs to do is scan the QR code and make an instant transfer of KD 300 to C.

Since she has enough money in her balance, she doesn’t need to go through the process of adding money to her balance for this particular transaction.

Withdrawing money

What if B needs cash for some reason?

Typically, she will need to withdraw money from Z to her linked bank account, from where she can then withdraw cash through a debit card. Some P2P apps will charge a small fee for this withdrawal while others like Kem won’t.

More recently, some P2P payment platforms (e.g., Paypal) have started issuing debit cards. If Z has this feature, B can just withdraw the KD 200 from her account without first sending it to her linked bank account.

Sending money outside of the platform

Instead of withdrawing the KD 200 remaining, suppose B decides to send it to D, a friend who is not on Z and does not intend to open an account.

In this case, she will need to send the money to the person’s bank account.

While many P2P payments systems allow this, they will charge a small fee for such transfers and it may not be as fast as a normal P2P payment. In fact, it may take a few days (1-2 business days) before such transfers can be completed.

3. 10 benefits of P2P payments for individuals and small businesses

6 benefits of P2P payments for individuals

• Convenience: As we have seen, you only need the phone number or email address of the recipient to complete P2P transactions. Requesting money is also easy, especially with the QR code technology used by platforms like Kem. Moreover, all of these can be completed on mobile devices.

• Instant payment: P2P payment transactions are completed within seconds or, at most, few minutes. This is unlike bank transfers which can take hours or even days (or weeks, for some international bank transfers).

• Variety of usage: The Lending Tree survey mentioned above shows how people are using P2P payment for a variety of reasons including charitable donations, purchases of goods and services, transfers to loved ones, among others.

• Affordability: Most P2P platforms won’t charge a fee for strict P2P transfers. They will only charge you if you are sending money to bank accounts outside of the platform.

• Ease of use: The typical demands for opening a bank account are absent on P2P platforms. Opening an account is easier. And since P2P payment apps are mostly digital-first companies, using their apps is easier compared to a bank’s mobile app or internet banking platform.  

• Loyalty rewards: Some peer-to-peer payment apps will even reward users with cashbacks and loyalty reward points.
  

4 extra benefits of P2P payments for small businesses

In addition to the benefits above, small businesses can also enjoy these additional benefits when they use P2P payments.

• More opportunities for personalisation: Businesses need to meet consumers where they are. Regarding payments, this means being flexible enough to offer them the payment methods they desire.

With the P2P payments industry projected to grow by 17.3% CAGR between 2021 and 2030 to become a $9.10 trillion market, according to Allied Market Research, businesses need to open their own P2P accounts and support P2P payments.  

• More revenue: One advantage of offering customers what they want is that businesses who do so are more likely to increase their revenue. Using P2P payments in response to its popularity among customers can help to retain or attract digitally-savvy customers.

• Less cash usage: Many customers resort to cash when they are making small purchases and some do it to evade the fees on debit cards payments. With P2P payments, they can conveniently pay for small purchases while also avoiding the fees on card payment. Overall, this will lead to less cash usage in-store (with all its inconvenience and security risk).

• Enhances point of sale transactions: We saw above how Kem is using QR code technology to support its money request feature. Businesses can use this feature at their POS terminals, allowing customers to scan their codes and pay on their phones.

4. Concerns about P2P payments

Despite the popularity and pros of P2P payments, its usage has also raised some concerns that must inform the choices of individuals and businesses.

Security challenges

As with every online payment method, security is a big concern with P2P payments.

About 23% of respondents to a Lending Tree survey have accidentally sent money to the wrong person while 15% have been victims of P2P scams. As the chart below shows, those who use these platforms the most are also the most likely to make mistakes or be victims of scams.

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This security challenge is reinforced by the fact that customers are typically responsible for any loss of money to scammers. As Lending Tree puts it, “But regardless of whether someone sent money to the wrong person or fell for a scam, consumers typically agree to be held liable for lost money when they accept a P2P provider’s terms and conditions.”

These security concerns are not however intractable.

First, many P2P platforms use sound security procedures to protect their customers. Customers can use multi-factor authentication to prevent unauthorised access to their accounts, among other steps.

Second, many P2P platforms have fraud policies that protect users. This involves them taking responsibility for investigating reported fraudulent transactions and also making refunds.

Regulatory concerns

Similarly, P2P platforms are not subject to the same regulations that guide traditional banks and credit unions.

One important consequence of that is that balances on P2P apps are not protected by deposit insurance (FDIC insurance in the US, Unlimited Deposit Guarantee in Kuwait).

However, since financial institutions providing P2P payment services do not operate like traditional banks, they cannot be subject to a bank run, which makes deposit insurance unnecessary to begin with. These platforms are often limited to facilitating payments rather than providing other financial services like taking deposits and making loans.

Inaccessible for B2B payments

While P2P payments have been supporting C2B (consumer to business) payments, they have not gained a foothold in the B2B space.

This is because B2B transactions are often of very large volumes, depending on the participants, and P2P platforms often have transaction limits that fence out big B2B players.

5. How to access safe P2P payments in Kuwait

While there are concerns with P2P, we have seen that they are not intractable.

So, instead of ignoring them, individuals and businesses should choose P2P platforms that provide all the benefits while defusing the security and regulations concerns through sound customer protection policies.

This is what a company like Kem is doing.

With this platform, people in Kuwait can send money to one another or to businesses in a convenient, fast, easy, and cost-effective way. They can also request money with the use of Kem’s QR code technology, a feature that makes the payment process even easier and simpler.

Furthermore, Kem does not demand a minimum account balance for continued usage of the platform. Also, there is high transparency about fees – there are no hidden charges.

To help you enjoy these advantages without looking over your shoulders, Kem provides multi-factor authentication (including FaceID verification), 256-bit encryption among other security features, to secure your account from intruders.

While Kem does not function as a bank, it sticks strictly to its payment facilitation duties within which it adheres to all the regulations and guidelines demanded by the Central Bank of Kuwait. It also ensures that its banking partners are notable and trustworthy financial institutions.

Finally, Kem prioritises fraud-related complaints. Its customer support team will treat any such complaints as a priority, doing everything possible to bring about a swift resolution.

[Do you want to send money to individuals and customers in Kuwait in a convenient, instant, and cost-effective way? Download the Kem app and start enjoying the benefits of P2P payments.]

Takeaways

• P2P payments have become popular because they are fast, affordable, and convenient and easy to use.
• P2P payments support the transfer of funds from individuals to other individuals or businesses as gifts or for the payment of goods and services.
• Individuals and businesses can also use the “request money” feature on most P2P platforms to make payments much more simpler.
• Many P2P platforms have put in security procedures and fraud policies to protect consumers.