If you need to send money to your mom or split a restaurant tab with your friends, peer-to-peer (P2P) apps have taken cash out of the equation. Instead of having to get change for a $20 so the math comes out even, you simply use an app to send money to whoever’s paying. Here’s what you need to know about two of the most popular P2P apps.
Venmo
Signing up with Venmo gives you an account that can be funded by linking a credit card or your bank account. You can then either request money or send money to someone else’s account using the Venmo app. As you build up money in your Venmo account, you can leave it there for future use or transfer it to your bank account.
For this, Venmo charges either nothing (if you fund your account from your bank account) or 3% of the transaction (if you use a credit card to fund your Venmo account). Your credit card may also charge fees and immediate interest if they treat this as a cash advance. Check with your credit card company before you’re hit with surprise fees.
Money is sent quickly between parties with Venmo, but your access to the money may be limited. Remember, it’s going from Venmo account to Venmo account. If you just received a payment of $200 and want to immediately deposit it in your bank account, you will pay 1% unless you wait the one to three days until transfers are free.
One feature many people enjoy – or find downright Orwellian – is the social media option on Venmo. When you sign up, your account is set as public. If you pay someone for “that great dinner out at Papa’s Pizza Palace”, the whole Venmo world will know that you went to Papa’s Pizza Palace. They won’t see the amount, but the more you use this service the more people will know what you’re up to. Venmo allows you to change your setting to “private” so that only you and the person you’re sending money to can see your comments.
In addition to changing your setting to private, keep an eye on the amount of money in your Venmo account. You may want to consider keeping around $20 in your Venmo account and transferring everything else to your bank account. Venmo accounts are not FDIC insured like bank accounts. While the prospect of a hacker stealing your money is minimal, moving the money to your bank account will provide increased levels of protection.
Zelle
Created by banks, it’s no surprise that Zelle was developed to move money directly from one bank to another. You may have seen ads for it when you were on your banking site paying bills or depositing checks. Instead of using a separate app, simply sign into your bank account and go to the Zelle page to start a payment or receive money. Since it’s on the bank’s website, you automatically benefit from any heightened security provided by your bank. Zelle also offers a standalone app for customers who don’t have access through their bank – these customers can link a debit card to the app to send or receive money.
The process is very similar to Venmo – you find the person you want to send money to, make sure you enter their information precisely, and voila – off it goes. There’s no social media aspect with this so your information is more private. Additionally, the money is sent directly from your bank account to another person’s bank account within minutes. Since money goes directly into your bank account, it’s immediately insured by the FDIC.
If the recipient’s bank provides Zelle, they simply need to sign in (or sign up with Zelle) to receive their money. If they are not in the Zelle network, the recipient can download the standalone app. If they are a first-time user, the transfer may take up to three days. Whether a user or not, whether on the standalone app or through the bank site, there is no fee for using Zelle (unless your bank charges a fee).
Limited or no consumer protections
Neither Venmo nor Zelle provides the consumer protections you receive from credit cards. Think of this like cash. If you handed cash to the wrong person, chances are no one would help you get it back. Similarly, if you mistakenly type the wrong email address or phone number, neither company will help you correct the mistake or retrieve your money.
In addition, both companies plainly state on their websites that you should only use P2P apps with people you know and trust. This means you shouldn’t use either app for buying concert tickets off Craigslist, because if you don’t get your tickets you’re just out of luck.
Other differences
As with any standalone app that deals with money, you are responsible for making it secure. You need a strong password, should consider two-factor authentication, and ensure protections are in place so no one can easily access your device. If you’re using Zelle through your bank, many security features are already in place.
Venmo offers a debit card allowing users to spend money from their Venmo account balance. While this might seem like a benefit, it may persuade people to keep money in their Venmo account instead of transferring it to their more secure bank account. Most – if not all – banks already provide debit cards, so having one linked to your Venmo account seems unnecessary.
As I mentioned before, Venmo passes on the credit card fee to its users and charges a 1% fee if you want to immediately move money from your Venmo account to your bank account. Venmo also has various fees for their debit card.
Unless you’re funding with a credit card, consider Zelle
Either of these apps will do what they say – they will send money from you to another person and vice versa. However, the benefits of being aligned with banks and providing immediate access to your money are strong cases to use Zelle. If you need to fund your account with a credit card though, Venmo is the way to go. Whichever you choose, only use these for sending and receiving money from people you know and trust. If you’re buying something online, consider using your credit card, PayPal, or other options with more built-in consumer protections.
Photo by Sharon McCutcheon