Peer-to-peer payment growth: Social and digital payments enabling seamless financial transactions

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  Quantumrun Foresight
• October 26, 2022

Insight summary

Social and digital payment systems have made financial transactions easy and convenient, from authorizing social welfare allowances to enabling friends to send money to each other through their phones. Numerous apps have emerged, offering customers better and faster ways to complete financial transactions. The long-term implications of this trend may include digital wallets becoming the main method for social service payments and increased partnerships among fintech companies.

Peer-to-peer payments context

Peer-to-peer (P2P) payment tools also known as social payments have driven the rapid growth in digital transactions. In the late 90s, PayPal became the first digital P2P cash transfer service as a way for consumers to pay for eBay purchases. However, many eBay sellers either didn't need or couldn't afford to set up a merchant account with a credit card company. Meanwhile, during the COVID-19 pandemic, sending cash through digital wallets and social media became the norm. As a result, P2P tools have become the go-to payment method, particularly among Millennials and Gen Z.

However, there is a more wide-scale use of digital social payments. For example, governments and development organizations have issued specific digital cards or wallets to transfer financial aid to the underprivileged. People can use the money for food, utilities, and tuition fees, and the card is only valid at a list of authorized merchants, which can be challenging.

Some recipients say they would prefer to receive cash because it would give them more options in buying produce. Nonetheless, as digital wallets become more sophisticated and people are given more choices in their financial transactions, P2P may become the most accessible, secure, and convenient method for social and digital payments.

Disruptive impact

Companies are continuously looking for ways to make social and digital payments more manageable. In 2022, Apple announced that US merchants could accept Apple Pay and other tap-to-pay methods by using an iPhone or a partner app enabled for iOS by the end of the year. This feature, called Tap to Pay on iPhone, will allow millions of merchants to use their iPhones as a payment terminal without additional hardware.

At checkout, the merchant will ask the consumer to put their credit card, iPhone, or Apple Watch near the merchant's iPhone. The payment will be securely completed using NFC (near-field communication) technology. The company also announced that all transactions are immediately encrypted and processed. Also, like with Apple Pay, the firm will not know what is being bought or who made the purchase.

Meanwhile, financial service company Visa has partnered with car manufacturer Honda to implement an in-car payment method. The two firms demonstrated a proof-of-concept connected car that can automatically pay for gas and parking. Technology gas station company Gilbarco Veeder-Root and IPS Group will develop two in-car apps, a wireless payment provider for parking meters.

In-car payments will be accessible through Visa Token Service, a platform for mobile transactions. Drivers can view and complete purchases using smart parking meters and gas pumps from their Honda consoles. According to Visa, making purchases in-car can save people time, get them to their destination faster, and make driving safer.

Implications of peer-to-peer payments

Wider implications of peer-to-peer payment growth rates may include: 

• More federal agencies using digital cards and wallets as social welfare payments to better monitor how recipients use the funding.
• Tech firms developing better digital wallets that can serve as payment gateways and identity cards.
• A deepening digital divide between people who use cash versus digital payments; e.g., people who do not have digital payment tools cannot pay for services at merchants who don't accept cash. 
• More partnerships between open banking startups and businesses to create and connect social payment portals.
• Increased investments in payments cybersecurity, including identity verification and transaction encryption.
• Enabling the potential transition to a cashless society.

Questions to consider

• How might a cashless society affect illegal immigrants and people who are houseless?
• How have P2P tools made financial transactions easy for you?