The explosive growth of peer-to-peer (P2P) payment apps, such as Venmo, Zelle and Square Cash, has spilled into the business world. A May 2019 survey found that 23% of small businesses already use P2P to collect payments, and a consulting group estimates that P2P payments to U.S. businesses will reach $74 billion by 2021.
The convenience of allowing customers to pay with P2P is clear, especially if your business doesn’t accept credit or debit cards. But there’s a hitch: Some of the most popular P2P apps are not designed—or officially approved—for business use.
P2P payments were originally intended to facilitate payments among people who know and trust each other—such as friends and family—so they generally don’t offer the same protections someone gets when paying by, say, credit card. In the highly regulated world of banking, businesses and individuals fall into two distinct categories, with different rules regulating how payments are dispersed, tracked and safeguarded.
Moreover, while Venmo does offer a payment platform for online merchants—and Zelle is rumored to be working on a business solution—the current business-specific platforms have restrictions and fees to be aware of.
The business side of P2P
Venmo’s current business platform is only for online retailers. Those transactions are actually processed through Venmo’s parent company, PayPal, or Braintree, which is owned by PayPal.
So, if your online retail business already offers a PayPal or Braintree payment option, you can integrate Venmo into your existing payment platform. But you will have to pay PayPal’s standard 2.9% plus $0.30-per-transaction fee. For the buyer, Venmo is free.
Venmo business clients also have to follow PayPal and Braintree’s “approved business uses” protocols. For example, if you use Braintree to collect online payments, it comes with a long list of prohibited uses (59, to be exact), including payment for goods or services during “door-to-door sales” and those made by “entertainment venues, including but not limited to nightclubs, bars.”
Square, best known for its mobile credit-card-processing platform, introduced its Cash App in 2013 to give users the option to pay with cash instead of credit. The transaction is free for customers, but businesses pay transaction fees for each transaction. Still a relatively minor player in the P2P space, Square’s transaction volume has been growing, says Ron Shevlin, managing director of fintech research at Cornerstone Advisors.
Zelle, a relative newcomer to the P2P market compared to Venmo, was originally designed to make business-to-consumer payments faster and easier. Created by Early Warning Services and backed by a consortium of more than 150 major and regional banks, Zelle is the first and only service that provides direct bank-to-bank money transfers. It does not charge transaction fees.
While positioning itself as a direct competitor to Venmo in the P2P space, Zelle’s bread-and-butter comes from the business side, helping companies disburse payments to customers, Shevlin says. In the first quarter of 2019, $39 billion was sent through the Zelle Network on 147 million transactions. Venmo reported that $21 billion flowed to 40 million users through the same period.
Although Zelle’s user agreement doesn’t expressly prohibit using its app to pay for goods or services, it generally requires that all transactions flow through “a personal, not a business or commercial” checking or savings account or debit card. That said, businesses that use their bank’s Zelle app may be able to use a business account.
The business dilemmas
So where does that leave small and midsize businesses whose customers want to pay with a P2P app? First, it’s important to know the exact business payment rules and requirements of whatever P2P app you’re looking to offer. Sole proprietors, for example, often use personal bank accounts for business payments, Shevlin points out—so they can more easily abide by Zelle’s requirement.
Beyond the transaction fees P2P apps charge businesses, accepting P2P payments from customers could create other problems, Shevlin adds. First, how do you integrate those payments into your accounting system? “When a customer pays with a card or a check, there’s a mechanism for tracking that payment within your accounting platform,” he says. “P2P skirts the entire accounting system.”
Another challenge is refunds. There is no way to reverse that payment. And, finally, there’s usually a 24- to 72-hour lag time in processing P2P payments.
Bottom line? If you want to let your customers pay with a P2P app, just make sure you understand the limits and follow the app’s terms and conditions.Print this article