Pay friends via mobile with P2P payments

By Benjamin Salisbury

As credit cards and mobile payments overtake cash as the preferred ways to pay, it makes sense that consumers are looking to find alternatives to cash when it comes time to pay back a friend or family member. If you rarely carry pounds on you anymore, it becomes difficult to chip in for an office lunch, or contribute to the group dinner tab.

However, person-to-person payments -- also known as peer-to-peer payments or P2P payments -- are rising in popularity, allowing you to transfer funds to your peers without exchanging actual cash.

How P2P payments work
P2P payments let you transfer money to another individual's account using the internet or their mobile phone. p2p-payments

There are a few choices for P2P payments, including PayPal, Paym and Google Wallet. With PayPal or Google Wallet, you'll need to sign up for an account with the provider and give it details of a bank account or
credit card you want to use when you transfer funds. These platforms let you send money to anyone who is a member of the network (though sometimes transfers are restricted to the country in which you live). Paym works exclusively with UK banks and building societies, and you'll need to sign up for the service through a participating institution.

1. PayPal.
With PayPal, you can send or receive money in a couple of ways. You can send money via an attached bank account, credit card, debit card or your PayPal balance. Recipients will receive the money into their PayPal balance.

It is free for UK PayPal users to send or receive money from each other using any payment method except a credit card, which will incur a fee. You can send money overseas, but a currency conversion fee will apply. Both fees are 3.4% + 20p per transaction.

To send money, you simply use your PayPal mobile app or the PayPal website, and enter your recipient's email or mobile number, and the amount. You can send money to a recipient who is not yet registered with PayPal; he will simply have to create an account to get his money. If you both have an account, the money should appear in the recipient's account instantly.

2. Paym.
Paym, which is the mobile banking app for 95% of UK banks, is the most established P2P system in the UK.

To send money, you must register a mobile phone number with your current account. Then, you'll log in to your bank or building society's mobile app and you can select a contact or enter the mobile number you wish to send money to, as long as the recipient, too, has a current account at a participating institution and has registered their mobile phone number with their account.

The money will go directly into the account linked to that phone number. If the number is not registered, you will receive a notification that the payment cannot be completed and stating the reason why.

"PayM is different to other payment systems because it is completely linked to a proxy database, in this instance the mobile phone number," says Neil Aitken, communications officer at PayM. "There are limits on the size of transactions, but all banks offer at least £250 per day."

Its main limitation: you can't send money abroad with PayM.

PayM is primarily used to pay friends and family but can also be used to pay tradesmen, like window cleaners or gardeners for small jobs. "It is a good option for small traders because it offers a convenient and fast way to get their customers to pay and means you don't need a card reader," Neil Aitken explained.

3. Google Wallet.
Google Wallet also only allows you to make transfers within the UK. It is free to send money via your Google Wallet balance or debit card. You send the money as an email attachment, even to those who don't have a Gmail email address (though they must have a Google Wallet account). The money is available to the recipient once they claim it, and they can then transfer it to a bank account, send it to others or use it for Google Play purchases. To transfer it to a bank account, they must have a bank account connected to their Google Wallet.

Google Wallet transfers are limited to £5,000 per transfer, and no more than £10,000 in five days.

P2P security
"There are both fraud and privacy concerns with all payment systems, particularly the more personalised they become via mobile apps," Rob Fernandes, mobile and online product and strategy director for PayPoint, a payment solutions firm, said in an emailed response to questions. However, most P2P payment mobile apps use tokenisation, which is when sensitive information is replaced with a unique token or symbol.

"Further, they leverage enhanced security features of phones (location, fingerprint, etc.) to better secure the transaction."

Although many P2P payments are made via mobile, some, such as PayPal, offer the ability to send money from your desktop or laptop. In that case, many P2P payment providers have introduced other methods of authentication. That could mean having a text message sent to your phone with a one-time code, or having to use a PIN in addition to a password.

See related: How payments will evolve in the next decade, Could mobile payments replace your plastic?, Inconvenient, not impossible -- a week without cash

Published: 28 October 2015