Peer-to-Peer Payments Survey (May 2013)

Download: Peer-to-Peer Payments Survey (May 2013)   (CA_News-P2P-payments.pdf)

 

Table of Contents

Survey finds satisfaction among P2P payments users

By Ruth Susswein

How do consumers use peer-to-peer (P2P) payments? To learn the answers, Consumer Action conducted an online survey in April designed to gather feedback about the relatively new phenomenon of electronic “person-to-person” payments.

The services, offered by financial institutions and standalone mobile and Web-based providers, allow payments to be sent from account to account and by email, text message or Web.

Peer-to-peer payments, sometimes called person-to-person payments, allow you to pay someone without cash or a check, even if the recipient can’t accept credit or debit cards. For example, electronic P2P payments let you cover your share of a restaurant tab, reimburse a friend for tickets to a movie, or pay your babysitter, housekeeper and other individuals, usually with just a few taps on your smartphone or computer keyboard.

Most respondents said that P2P payments were a fast, easy and convenient way to pay others. “It makes splitting the bill among friends easy,” said one. “It’s faster and easier than a check or money order,” said another.

Ninety-two percent of those surveyed who had sent a P2P payment said the process was quick. Respondents’ feedback on payment processing times ranged from just seconds to three to five business days. Of those who had received a payment, 85% agreed that they got the funds “quickly”. Many said they got immediate confirmation of the payment and were able to access it the same day.

About half (51%) of respondents who indicated they had never used a P2P payment service said it was because they were not aware the option existed. Other top responses from non-users were they didn’t want to incur fees and they didn’t trust the process. About a fifth of non-users said they were “interested but never took the time to research” P2P payment processors.

Overall, 611 consumers began the survey, however people who had no experience with person-to-person payments were eliminated early in the process, leaving 505 who completed the survey. More than three-quarters (77%) said they would recommend using P2P payments.

Sending payments

The majority (64%) of respondents who had sent P2P payments had initiated them on the Web. Only 6% of those who sent payments had used a mobile app. Storefront payments (such as Western Union or Walmart) and email tied at 6% each for the third most likely way to send a payment, while payments sent via text message and “social media” registered one response each.

Banks trumped third-party P2P payment processors, with 63% of respondents who had paid other individuals using direct account-to-account transfers, online bill payment and wire transfers at their banks. A number of consumers commented that using a P2P system through a bank was “safer” because payments could be tracked and disputed. Twenty-three percent had made payments through a P2P website.

Chase, Wells Fargo and Bank of America, in that order, were the banks most reported being used for P2P payments.

Of respondents who said they had used a third-party P2P payment processor instead of a bank, 80% named PayPal—the granddaddy of Internet payment systems.

Funding payments

The majority of respondents (68%) said they funded their P2P payment using a bank account, while 10.5% used a debit card, 8.7% used a credit card and 6.4% funded the payment with cash.

Fees

For 80% of those sending payments, no fee was charged. For those who specified an amount, most indicated they had been charged a flat fee as opposed to a percentage of the payment.

No fee was charged to receive a payment for three-quarters of those surveyed. Many of the rest specified that they had been charged between 1% and 4% to receive a payment.

While survey participants were overwhelmingly satisfied with the P2P process, about 12% detailed some sort of problem. One consumer found the “registration process overly tedious.” Some reported a delay in accessing funds sent to them. Others were unhappy with paying a fee to receive money, while others mentioned concerns about lack of documentation or how to dispute a problem if one arose.

Future of P2P payments

Reimbursing friends or family was how most respondents (64%) planned to use P2P payments in the future. More than half (57%) said they’d pay a small bill (babysitter) via P2P; 49% would pay a large bill (rent) with a P2P system. If fees were low, others imagined using this new payment process to pay merchants at farmers markets and crafts fairs, for recurring school payments, to send a monetary gift or to manage household expenses using different accounts.

The survey was conducted from April 8-21, 2013, using the online polling tool SurveyMonkey.

Cash without the cash

By Ruth Susswein

It’s time to pay the babysitter and you realize you’ve got only $7 cash, or you’re splitting the restaurant tab with two friends and it’s awkward to pay with three debit cards. Wouldn’t it be great if you could electronically send what you owe directly to the babysitter or to the friend who pays the dinner bill?

The future is here in the form of peer-to-peer (P2P), or person-to-person, payments. Depending where you bank, it may be possible to make an electronic P2P payment from your bank account. Alongside bank services, many third-party companies enable P2P payments.

How it works

Many banks allow customers to send P2P payments from their bank accounts directly to others’ accounts using a smartphone or computer. You can also deliver payments electronically by mobile phone or computer to another person’s account by transferring money from a prepaid account, a debit card or a credit card using a third-party processor such as PayPal or Amazon WebPay.

Other third-party companies that specialize in moving money digitally between people include Popmoney, Dwolla and Venmo. ClearXchange is the P2P payment partnership between Wells Fargo, Bank of America and Chase. American Express offers a digital prepaid account called Serve, which can be used to split a bill via a P2P payment or to make an in-store purchase with the linked prepaid card.

Rather alarmingly, some P2P systems allow you to share your payment activity with social networks like Facebook. Ripple, another digital money transfer system and social network, uses digital currency (“ripples”) for personal payments—and even loans—within an online community.

While many P2P payments are small, local, personal payments between individuals, some P2P payment services can be used for international remittances to family members. Other possible uses include payments from individuals to micro businesses such as food vendors, or to personal service providers like the piano teacher or math tutor.

Sending payments

The expanding P2P payments industry offers a variety of ways to send and receive money. Your bank may offer its online banking customers a P2P payment service, or you might link your bank or credit union account to a third-party company such as Popmoney or Dwolla to process paperless payments.

Depending on the provider, you may or may not need the recipient’s bank account number and bank routing number. Typically, you log in to your account online or via a mobile app and provide a person’s name, email address or mobile phone number, the amount of the payment and, if you like, an optional note.

Receiving payments

For the process to work, the person you are paying must be able to accept your payment. That usually means having a checking or savings account at the same bank as the sender or registering with the bank or third-party payment processor. Recipients receive an email or text message notifying them of the payment. Depending on how the funds are routed, the money may be available in minutes or in 24-36 hours.

Consumers may prefer to use P2P systems that do not require recipients to provide detailed bank account information to the sender. Popmoney, which enables P2P payments for customers of 2,000 banks and credit unions, is one system that only requires the sender to have the recipient’s email address or phone number.

In an online survey conducted by Consumer Action, 77% of consumers who have used P2P payment systems say that they would recommend the process to others. Many said they found that making a P2P payment was simple, fast and easy. (For more survey results, see “Survey”.)

With a mobile phone, even consumers without bank accounts can make P2P money transfers. P2P payments are already very popular in Africa and other developing nations where many people do not have traditional bank accounts and wireless communications are prevalent. Without a bank account, consumers receive a credit for the funds via smartphone. Using the sender’s mobile phone number and a one-time passcode, cash can be accessed at stores or an ATM even if the recipient does not have an account.

Ultimately, the speed and convenience of P2P payments may render paper checks obsolete, but consumers should be aware that there may be a cost for electronic personal payments, and that cost can vary significantly.

Compare costs

Banks prefer that customers make electronic payments because they’re less expensive to process. So for now, they don’t charge fees when processing P2P payments through their own system. When they use a third-party processor (Popmoney), the sender may be charged a fee, which can run about $1 per transfer. (Some banks don’t pass the fee along to users.)

Our research shows that two third-party processors charge “request” fees if you are seeking payment from another person. The only fee we encountered for collecting funds was through Dwolla.

Fees may also be based on the source of funds for the payment. For example, funds advanced from your credit card may carry a fee of up to 3% while the same transaction stemming from a bank account may be free. Check fees and service terms before you use any P2P service. (For more information, see “Comparing electronic P2P payment options”.)

Security

Bank P2P payment systems that transfer funds between accounts (no intermediary) have the advantage of avoiding sharing account numbers and other personal information with a third party. This may cut down on the possibility of fraud. Some P2P payment providers verify participants by sending a small amount (“micro deposit”) in advance. Look for liability protections or “guarantees” that you will not be on the hook for unauthorized transfers.

Consumer protections

There are no protections specifically designed for P2P payments. Your legal protections are based on the underlying payment method. Did you use a prepaid, credit or debit card, or did you transfer money directly from your bank account? Your consumer rights will vary accordingly. Protections under state money transmitter laws may apply in certain states. (For more information on your protections when using peer-to-peer payments, see “How to avoid, resolve P2P payment problems”.)

Comparing electronic P2P payment options

By Monica Steinisch

As consumers have gotten more comfortable with online banking and mobile transactions, the popularity of peer-to-peer (P2P) payments has grown. And so have the options for how to make a P2P payment. For consumers who are new to P2P payments, the greatest challenge is choosing the payment option that offers the most convenience and capabilities at the lowest cost.

Privacy, protection at banks

Many banks and credit unions that offer online and mobile banking also now offer a P2P payment option (in addition to their online bill-pay system). The advantages of making P2P payments through your financial institution may include:

Potentially fee-free transactions: Many banks offer P2P payments at no charge because it’s less expensive to facilitate electronic transactions than to process paper checks.

Ease of use: There’s no additional set-up if you’re already registered for online banking.

Greater privacy: You won’t have to share sensitive account information with a third party if your bank has its own P2P system.

Stronger consumer protections: Banks are subject to federal and state regulations protecting consumers’ money and limiting their liability for unauthorized transactions.

But not all banks offer all these advantages. For example, nearly 2,000 financial institutions offer P2P payments through a partnership with Popmoney, a third-party processor, which means your payment details are shared with someone other than your bank, and you may incur a transaction fee.

Bells and whistles

If you don’t have a checking or savings account, you can still make P2P payments. In addition to Popmoney, third-party P2P processors include Venmo, Dwolla, PayPal and Amazon WebPay (a feature of Amazon Payments). Nooch, Square Cash and a money transfer feature from Google Wallet are new options expected to debut in the coming months.

Third-party P2P processors tend to offer more ways to:

  • fund payments (from credit cards to cash);
  • send payments (by text message or social media); and
  • use additional features (send an e-greeting with your payment or pay by bumping two smartphones).

Drawbacks may include fees, the time and effort required to set up a new account, the need to reveal personal information to a third party, and the lack of strong, legally mandated consumer protections in comparison to those provided by financial institutions.

American Express’s Serve product is a hybrid. It’s a digital prepaid account from a major financial services company that allows you to make P2P payments and comes with a linked prepaid card that you can use wherever American Express cards are accepted. Serve’s advantages include a variety of American Express cardholder benefits such as roadside assistance and purchase protection.

PayPal also offers a prepaid MasterCard that you can link to your PayPal account. Note: Prepaid cards don’t offer the same protections as a bank account, debit card or credit card do. (See “Problems” for more information.)

Here are some things to consider when choosing how to make P2P payments, along with how a few P2P service providers compare in each area.

Funding. Before you can send money, you have to designate a source of funds. Depending on the service, you may be able to fund your payments by checking or savings account, debit card, credit card or cash.

Not all P2P processors will accept all sources of funds. For example, your bank P2P service, Popmoney and Dwolla will only accept funds from a linked checking or savings account.

Venmo allows you to fund payments from a bank account, a debit card or a credit card.

Amazon WebPay permits payments funded with a credit card.

PayPal lets you fund payments with all options. To use cash, you need to buy a Green Dot MoneyPak for up to $4.95. You load the cash onto the MoneyPak (at a retailer) and then enter the MoneyPak code to instantly add money to the account you want to fund.

You can load your prepaid American Express Serve account by direct deposit, bank account transfer, debit, credit, or cash with a MoneyPak.

PayPal, Venmo, Dwolla, Serve and Amazon WebPay all allow you to fund payments from your “prefunded” account balance with them. Prefunding means putting money in your account (or allowing money you receive to stay in the account) to be used as needed for future transactions. Prefunding is useful when you are using cash or when you are putting money in an account for someone else to use (like a child away at college). (To compare P2P options, see the chart.)

Payment send options. There are a variety of ways to send a P2P payment, including through social media.

Venmo users choose a person from their cell phone contacts or Facebook friends list, add the payment amount and a personal message and hit send. Text message, email or Twitter “tweet” notifies the recipient. Of dubious value is Venmo’s ability to allow you to share your personal message and payment status with your Venmo friends, Facebook friends or Twitter followers. (One user writing about the experience described this as “creepy”. You be the judge.) Venmo payments can be made via mobile app or from the Venmo website to anyone with a U.S. cell phone.

If you bank with one of the financial institutions that has partnered with Popmoney, you can send payments by logging in to online banking.

Or you can sign up with Popmoney and send payments via its website or mobile app. You’ll need the recipient’s name plus email address, cell number or bank account number. Popmoney, too, enables you to include a personal message or an e-greeting. The recipient gets an email or text notification.

Dwolla users can send money to email addresses, phone numbers, Facebook friends, LinkedIn connections, Twitter followers and small businesses that accept Dwolla. Payments can be made online or with the Dwolla mobile app.

Amazon WebPay lets you send money to anyone using either an email address or Amazon alias (a unique identifier that is used in place of a phone number).

Serve lets you send and receive money with the Serve mobile app, by email or text message, or through a wall post or message on Facebook.

Like the others, PayPal allows you to send money with an email address or mobile number, but it also gives users the coolest way to pay: just by “bumping” smartphones together. You and your payment recipient both need the Bump Pay app, which must be installed before you make the payment. This is perfect if you’re paying your friend for your share of a just eaten restaurant meal. But if you want to pay anyone more than three feet away, you’ll have to use PayPal’s mobile app or visit the website. (Capital One 360, formerly ING Direct, also offers a “bump” payment app for its customers.)

Most P2P processors, including PayPal, Dwolla, Venmo, Amazon WebPay, Serve and Chase Bank’s QuickPay, require recipients to establish an account to collect a payment. While the process is free and fairly straightforward, the task can turn some recipients off to P2P transactions in favor of cash or a paper check.

Fees. At least four of the biggest U.S. banks offer customers free P2P payments. These include Bank of America, Wells Fargo, JPMorgan Chase and Capital One 360.

Some banks that offer P2P payments through a third-party processor such as Popmoney waive the processor’s fee, while others pass it along to customers. Of the three banks we checked that partner with Popmoney, First Hawaiian Bank and Regions Bank both charge $1 per P2P transaction, while Ally provides the service at no charge. (You can find out if your bank offers Popmoney by searching from the Popmoney homepage. Then check your bank’s website to find out if there is a fee.)

Sending money directly via Popmoney (not through your bank) will cost 95¢ per transaction. Receiving money is free.

It’s free to receive money or to send money from your prefunded Venmo account, bank account or debit card, but there’s a 3% fee to send money using a credit card.

There’s no fee to send or receive money using Amazon WebPay.

Serve does not charge any fees to send or receive money. (ATM withdrawals and balance inquiries using the linked Serve prepaid card are $2 each, after one free transaction per month. The ATM owner/operator may also charge a fee.)

Dwolla transactions of $10 or less are free; transactions over $10 cost 25¢ each. Dwolla automatically deducts the 25¢ fee from the recipient’s payment unless the sender chooses to pay the fee instead.

PayPal doesn’t charge a fee to send money with funds from a linked bank account or your PayPal account. But if you use a debit or credit card, you’ll pay a 1.9%-to-2.9% transaction fee plus 30¢ (the sender decides who pays this fee). The same fee structure applies when using the Bump Pay app. PayPal is the only third-party processor we reviewed to offer international P2P payments. A fee ranging from 0.5% to 2% (depending on destination) applies when funded by a bank account or your PayPal balance. The fee increases to 3.4%-3.9% if you fund the payment with a credit or debit card. To send money outside the U.S., compare the cost of using a traditional remittance provider such as Western Union.

Venmo, Dwolla, Serve and Amazon WebPay all allow you to request money from someone for free. Popmoney charges 95¢ for any money request that is fulfilled. Money requests through PayPal are considered invoices and you’re charged 30¢ plus 1.9% to 2.9% of the amount, automatically deducted from the amount you receive.

Note that credit card issuers could add a cash advance fee (2%-5% of the transaction) when you use the card to fund a P2P payment.

Transaction time. How long it takes for your transaction to be processed depends on many factors, including the source of funds, whether or not both sender and recipient use the same financial institution, and whether the recipient is already signed up for the same service. Payments between accounts within the same bank or the same third-party P2P processor can happen virtually immediately, or by the next day. Other transactions, such as from your P2P account to the recipient’s bank account, could take a few days. If your payment is urgent, you should contact the processor and ask what your quickest option is.

Transfer limits. All services impose limits on how much money can be transferred in a day, week or month. Some limits are required by law.

While the limits won’t be an issue for most users, you should check the maximums if you plan to send or receive large amounts. For example, Popmoney allows users to send up to $500 per day or $1,000 per rolling 30 days by debit card, or $2,000 per day or $5,000 per rolling 30 days by bank account. If you’re requesting money, the limits are $1,000 per day or $2,500 per rolling 30 days.

Federal law limits savings and money market accounts to six withdrawals or outgoing transfers per month. If you plan to make more than six P2P transactions in a month, use your checking account to fund them.

Consumer Action’s Peer-to-Peer (P2P) Payments Survey

Data (fees and options) were compiled for a selection of electronic P2P payment processors during April 2013 by Monica Steinisch and Alegra Howard and coordinated by Ruth Susswein.

Note: You are prohibited from using Consumer Action’s name or any reference to its surveys in advertising or for any other commercial purpose.

P2P payment processor      Funding     
     options     
Payment ‘send’ options Fees
Bank/credit union - Checking or savings account - Online banking account via website or mobile app - Free to send and receive money (There may be a fee to send money If your bank/credit union uses a third-party processor.)
- Money requests (messages you send asking for payment) may not be available through your bank’s P2P service.
Amazon WebPay - Credit card
- Amazon Payments account
- Amazon Payments website - Free to send, receive and request money
American Express Serve - Cash
- Checking or savings account
- Credit card
- Debit card
- Direct deposit
- Serve account
- Serve website
- Mobile app
- Facebook wall post or message
- Text message
- Free to send, receive and request money
- Loading cash incurs a $4.95 MoneyPak fee.
Dwolla - Checking or savings account
- Dwolla account
- Dwolla website
- Mobile app
- Free to send and receive money on transactions of $10 or less; 25¢ on transactions over $10 (deducted from payment unless sender chooses to pay fee)
- Free to request money
PayPal - Cash
- Checking or savings account
- Credit card
- Debit card
- PayPal account
- PayPal website
- Mobile app
- Bump Pay app
- Free to send when funded by linked bank account or PayPal account; linked debit card or credit card: 1.9%-2.9% of transaction plus 30¢
- International fee: 0.5%-2% (3.4%-3.9% with debit or credit card)
- Free to receive money
- Request (invoice) fee: 1.9%-2.9% of amount requested plus 30¢
- Loading cash incurs a $4.95 MoneyPak fee.
Popmoney - Checking or savings account - Popmoney website
- Mobile app
- Online banking account (if your bank/credit union has partnered with Popmoney)
- To send or request money: 95¢ per transaction if not through your bank; free or ≤$1 through your bank
- Free to receive money
Venmo - Checking or savings account
- Credit card
- Debit card
- Venmo account
- Mobile app
- Venmo website
- Free to send money through Venmo account, bank account, or debit card; 3% fee with a credit card
- Free to receive and request money

 

How to avoid, resolve P2P payment problems

By Monica Steinisch

If you have a bank account, you probably already know that you can “stop payment” on a check that gets lost or stolen. But what rights and protections do you have if a peer-to-peer (P2P) payment doesn’t arrive where it’s supposed to, or if someone steals your phone and transfers your money to their account? While being able to pay friends and small merchants in seconds with a few taps on a keypad is convenient, is it really safe?

Protections

The protections you have if something goes wrong are based mainly on how you fund the payment. This can get complicated.

P2P payments, including those made via a mobile device, that are linked to a credit or debit card or bank account receive the same guaranteed federal protections as any other type of transaction made with those payment options.

So if the source of your P2P payments is your checking or savings account or the debit card linked to it, your liability for fraudulent or unauthorized electronic transfers is limited to $50. But you must report the missing card (or the missing mobile device used to access the account) to the financial institution within two business days.

Your liability can reach $500 or even more if you take longer to report the incident. If you find unauthorized charges on your bank statement, but you haven’t lost your phone or debit card, you won’t lose any money as long as you report the transaction(s) within 60 days of the statement showing the unauthorized activity. Any missing funds should be replaced within 10 business days.

A credit card offers even better protections for funding a P2P or mobile payment. In addition to avoiding the risk of someone draining your bank account, even temporarily, the law caps your liability for unauthorized charges made with a lost or stolen credit card (or linked mobile device) at $50—and most card issuers waive that as part of a voluntary zero-liability policy. If just your credit card number is stolen, you have no liability for unauthorized transactions.

Other funding sources may not offer the same level of protection. For example, funding your payment with your P2P account balance provides none of the automatic protections you get with a debit or credit card. And there is no legal limit to the amount of money you could lose on unauthorized or erroneous transactions if your P2P payment is linked to a prepaid card. However, in practice, prepaid cards offer the same $50/$500 limits on fraudulent charges that debit cards do.

The Consumer Financial Protection Bureau (CFPB) is currently considering new rules for prepaid cards that could extend the same legal protections that debit or even credit card users enjoy. But, for now, any protections are voluntary, offered at the discretion of the card issuer under its “user agreement,” and can be rescinded at any time.

Even assurances from American Express, Discover, MasterCard and Visa that prepaid cards carrying their logo qualify for zero-liability protection do not provide the automatic legal protections granted to credit and debit card users.

If you have any question about which type of card your P2P payments are linked to or how the payments are being funded, ask the P2P processor directly since the consumer protections can be vastly different.

Middleman may matter

If your P2P payment is not funded by a linked credit or debit card, or checking or savings account, the intermediary (or payment processor) may affect your liability for losses. P2P processors and other non-banks that move money from one party to another are not subject to the same rules as banks and other financial institutions that offer checking and savings accounts. Non-banks may be subject to state money transmitter laws instead, which tend to provide less protection for consumers.

Linking your payments to a credit card (if possible) or using P2P services through your financial institution are the two strongest ways to protect yourself against bogus transactions or mistakes.

If your payments are drawn instead from a P2P account balance or from a prepaid card, compare several P2P processor options, read the user agreements carefully, and understand what protections each option offers if, for example, a payment gets sent to the wrong person or is for the wrong amount.

Once you start making P2P payments, check your transaction statements regularly since your liability for losses may depend on how quickly you report a problem.

Payment problems

Start with the P2P payment processor. If you discover a mistake or notice a transaction that you didn’t make, contact the payment processor. Do so as soon as possible, since an issue such as the wrong recipient or payment amount might be resolved easily if it’s caught before the transaction is processed. Explain the problem and find out what steps are required to resolve the issue. In some cases, you will be required to fill out paperwork. If you’re claiming that a transaction was fraudulent (rather than an error), you may have to file a police report. Confirm what you are told by reading the dispute resolution policies on the company’s website.

Contact the linked account issuer. If the payment was made via a linked credit card, debit card or bank account, and the issue is not resolved immediately by the P2P processor, contact your credit card issuer or bank. Alert the issuer to the error or unauthorized charge and officially dispute the transaction to retain your legal rights.

It’s important to know both your legal rights and the rights you have under a company’s user agreement so that you can take advantage of the strongest protections available. For example, the law may not provide you with protections against errors linked to your prepaid card, but if the prepaid card issuer or P2P payment processor has a (voluntary) zero liability policy, pursue that.

The Federal Trade Commission (FTC) shares enforcement responsibilities with the Consumer Financial Protection Bureau over non-bank providers of financial products and services, such as payment processors. To file a complaint or learn more about your rights contact the FTC or the CFPB.

It’s always preferable to avoid a problem than to have to resolve one. You can avoid some problems by setting your phone to lock after a short period of inactivity so that if someone gets a hold of the device they can’t access the information without a passcode. Use strong passwords on all your accounts, and don’t use the “remember me” function to store usernames or passwords. Learn more in Consumer Action’s Digital Dollars series of publications.

Know before you transfer

Here are a few things to ask service providers before using P2P payments:

  • If there is not enough money in my account to cover a payment, will the payment be denied or will the payment go through and trigger an overdraft fee?
  • If I am the recipient of P2P funds, what happens to my account information after the transaction is completed?
  • If there’s an error in the process (didn’t receive funds, wrong amount, etc.), whom do I resolve the problem with? (Also see "How to avoid, resolve P2P payment problems.)

Moving money online with unique credit option

By Michelle De Mooy

Internet entrepreneur Chris Larsen is driven to cut out the middleman from financial transactions. In the late 1990s, he gave consumers direct access to mortgages on the Internet with E-Loan (now Quicken Loans) and later created Prosper.com, a marketplace for individuals to borrow and lend to one another without banks or brokerages.

Now he’s co-founded Ripple, a mind-boggling open-source P2P payment network that uses virtual “math-based currency” to again cut out the middleman. Larsen says “the way we send money today is as out-of-date as sending telegrams instead of email.”

Still in its infancy, the Ripple beta allows individuals to pay a friend or create credit based on free ripples and disburses them to people within their own peer-to-peer social network. Because the site is not affiliated with a financial institution, users essentially create their own ‘banks’ and issue their own credit.

Each Ripple transaction relies on social connections as collateral. Called by some “financial capital backed by social capital,” it is a kind of P2P honor system in which people lend and accept funds from each other, using their trust in their friends as collateral.

Here’s how Ripple works. If you have access to the Internet, and a Ripple account, you can send to or receive money from anyone in the world with Internet access. Join the Ripple network at Ripple.com, where you create a virtual wallet. Then create a primary contact list of your peers and choose the amount of credit you would be willing to offer each contact in your network. This credit line becomes available to anyone in the Ripple network who knows the individuals you provided credit to. In other words, “friends of friends” would have access to the credit line.

You might loan money to Jane, who is vouched for by John. John is in your social network; Jane is in his. Each transaction, or transfer of money, costs the lender only 1/1000th of a cent. The nearly nil fee is for security reasons rather than earnings. The P2P transactions are globally friendly, too – currencies from all over the world can be automatically exchanged within the platform.

The site doesn’t require you to input any personal information of any kind. Your social connections are your credentials and you identify them and contact them using nicknames.

Ripple is an open source program, which means no one owns it or controls how users operate it. When you open an account, you credit is established with a few ripples (a system of value created by the founders of the service in order to minimize disruption by cyber thieves and hackers). Because the service was started with a finite number of ripples (100 billion) there is no “scarcity” and the ripple’s worth remains stable. The founders have donated 80 billion ripples to OpenCoin, Inc., the group of developers who maintain the site, and plan to donate ripples to users at no cost to seed the system. The more people using the site, the more ripples are worth. At this writing, $1 equals about 750 ripples.

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Peer-to-Peer Payments Survey (May 2013)   (CA_News-P2P-payments.pdf)

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