How do you want to pay?

If you’re of a certain age, you may remember financial innovation as Saturday morning hours at your local bank branch and a toaster for a new account. Or, you may remember the awestruck feeling when the first ATM machines appeared. If neither memory registers, you’re probably laughing at me but you may not know how to properly write a paper check. Times have changed.

Now, you never need to step inside a bank, cash is disappearing from the economy, and new peer-to-peer payment methods have emerged.

All of these are phone apps to which you connect your bank account to make and receive payments. I’ll summarize the four most important ones and warn about a key risk inherent in them:

1. Venmo

It’s the most well known and commonly used. Payments you receive remain in your Venmo balance until you transfer them to your bank account. Payments you make from Venmo are drawn from your Venmo balance if it can cover the payment in full, otherwise it debits your bank account. There are no fees unless you request an immediate transfer of funds from your Venmo account to your bank. It should work with any Android or iPhone user with a bank account and debit card.

2. Apple Pay Cash

It’s similar to Venmo but you must have an iPhone. Instead of a separate app, you make and request payments through iMessage. It’s even simpler than Venmo and I like it because there is a record of your transactions in iMessage. However, it doesn’t transact with Android users.

Note that Apple Pay Cash uses your Apple Wallet but the two are different. With Apple Wallet, you load your credit and/or debit card(s) onto your iPhone and when you make payments to a business, it uses either your debit or credit card, as you chose. Apple Pay Cash is for payments to and from other people.

3. Zelle

It was created by a consortium of banks and is designed to be used within your bank’s existing app if they’re part of the consortium or if they’re not, there is a Venmo-like app to use. The advantage of Zelle is that payments you receive go immediately into your bank account, rather than sitting in your Venmo or Apple app until you request a transfer. Like Venmo, it works across Android and iPhone users.

4. TransferWise

It’s used to send money in a different currency. Similar to Venmo, each party connects the app to their local bank account. They offer a low cost way to send money in one currency and deliver it in another. If you want to send or receive money overseas with people you know, this is a cost-efficient and convenient way to do so. As TransferWise says, they are “a cheaper, faster way to send money abroad.”

But, be careful.

All of these peer-to-peer payment models have one serious shortcoming about which you should be careful. You have little or no fraud protection or recourse on the payments you make using them. You should assume that you are paying with cash and your payment is irreversible. Thus, if you are initiating a payment, be careful that you’re sending it to the correct recipient.

They all make somewhat clear that they should be used to transact with people you know and trust and you should take that to heart. All these apps work great for any situation where you would have otherwise paid cash but not as well when you’re dealing with strangers or making payment before receiving the goods or services.

I recommend that when transacting with someone for the first time, the person receiving payment should initiate the request, rather than the payer. You don’t want to mistakenly send a payment to the wrong person and then have to try and get it back (again, think cash). Many of my clients pay me using Venmo and I initiate the payment request for this reason.

You may want to try one of these peer-to-peer payment systems the next time you’re transacting with someone you know. Just be careful you’re sending money to the right person.

Checks and cash are the new dinosaurs.

You can also read:

  1. The NY Times on Apple Pay Cash.
  2. The Wall Street Journal on the risk of paying the wrong person with Venmo.

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