Simply put, P2P is an easy way to transfer funds from one person to another without using a credit card, cash or check. Need to split the tab at your favorite pizzeria or pay your share of the rent? It’s as easy as entering a phone number or email address into an app on your smartphone.
The market research firm eMarketer estimates that the total number of P2P mobile payments will grow nearly 30 percent, to reach 82.5 million users. While you might not be using P2P — though it is a great way to instantly pay the babysitter and move you to the top of their preferred client list — your children probably are. Gen Zers are glued to their phones. They have no time for writing, much less depositing, a check, assuming they even know what a check is. And cash? Too much of a hassle.
Going cashless isn’t as scary as it sounds. Most P2P platforms have proved safe to use, says Will Furrer, a father of three and chief strategy officer for Q2, a company that builds mobile apps for banks and credit unions. All use state-of-the-art encryption to keep your data and transfers secure. In fact, Zelle was created by the banking industry as a direct competitor to Venmo and other peer-to-peer payment services.
Still, with any digital disruption comes risk. That’s where parents must step in. Here are some ways to help your child safely navigate the P2P universe.
Be protected from the get-go. Make sure your child’s devices are properly secure. This means confirming they are password-protected, have the latest version of operating software and, in the case of Android phones, also have anti-virus programs installed (iPhones don’t require anti-virus programs), says Robert Siciliano, a security analyst with Hotspot Shield who provides security awareness training to corporations.
Use two-step authentication. Set up the P2P account so that in addition to a username and password, your child must enter a one-time code (usually sent via text message or an authentication app) to gain access. While the P2P platform may automatically recognize the phone, the two-step process ensures that your child actually has the phone in hand, and it helps to reduce fraud.
Go with the crowd. There are more than a dozen established P2P platforms, but no one needs to use every one. Have your children narrow their choices to one or two. This is one time when “all my friends use it” may be your best guide, because to share, you have to be in the same network — Zelle to Zelle, Venmo to Venmo, Square Cash to Square Cash and so on.
Set up a prepaid debit card account. Worried that junior will accidentally empty your bank account? A good option is to go to the bank and set up an account in your child’s name with a prepaid debit card to link to the P2P account, advises Erika Rasure, a financial therapist and assistant professor of business and finance at Maryville University in St. Louis. Then, make deposits, or put their allowance, into that account. Even if your child’s account becomes compromised, your personal account won’t.
Avoid strangers. While peer-to-peer payment platforms make it easy to move cash, they are really designed for use among friends and people you trust. Unlike a credit card, there are no buyer or seller protections, no safety nets. If your child scores concert tickets from a nice guy outside the stadium and the tickets turn out to be fake, that money is gone. Furrer’s P2P standard: “If you wouldn’t let that friend stay overnight at your home,” don’t send money with a P2P account.
Type carefully. If you goof, it’s on you. Confirm the recipient’s information and double-check that email address or phone number. If you type the wrong email or incorrect amount, don’t expect any help. Oopsies do happen, even to P2P pros. Rasure once sent $300 to a family photographer through PayPal. “I messed up the email address and realized it immediately, but it was too late.” She filled out a dispute resolution form, but as there was no verifiable fraud, PayPal essentially said, “tough.” The onus is on the sender to track down the recipient and try to get the money back. In Rasure’s case, the unintended recipient did return the funds — six months later. Let your children know they may not be that lucky.
Read the fine print. Let’s be honest, your child is not going to read the tiny type. Dig into the fine print of each platform, even if you don’t plan to use it yourself. What access does it have to your bank and credit card accounts? Check the fee structure and see if it applies to debit card, credit card or both. Some P2Ps are fee-free if tied to a debit card or checking account. Typically, there is a fee (about 3 percent) if you use a credit card. Others charge a flat fee for each transfer. Also, what are the transaction and spending limits? Some are set by the app and others by your bank or credit union. They can range from a maximum of $2,500 to $19,999.99 per week.
Have the talk. Some parents find it easier to talk with their children about sex than about money, Rasure says. Consider P2P an opportunity to have a healthy conversation about money management. “If they blow through their monthly allowance in a week, don’t replenish it,” she says. “Instead, sit down with your child and look at what is a need versus what is a want. A tank of gas is a need. A cool pair of shoes is a want. Explain the rules and the consequences.” The bottom line, Siciliano says, “when it comes to P2P, parents need to know as much, if not more than their kids.”