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What Is Peer-To-Peer Transfer? What Are The Pros And Cons?

Technically speaking, every transaction is a peer-to-peer (P2P) transfer.  Whether you're using cash, credit cards or ACH payments, there is a buyer/sender on one side and a seller/receiver on the other.

Though in recent years, the definition of P2P transfers has evolved to describe a new way of exchanging money, goods and services — one that doesn't rely on traditional intermediaries like banks or credit card companies.

In many ways, these newer P2P options closely resemble cash or bartering, except that all transfers can happen over vast distances without the two “peers” ever meeting.

However, in countless other ways, P2P transfers are nothing like cash or bartering:

  • Cash suffers from inflation and supply limitations since most currencies are controlled directly or indirectly by a centralized bank.
  • When bartering, you're limited to stock items that are often difficult to divide. However, with P2P transfers, you're not dealing with chickens or seashells. Most P2P options mimic liquid currencies that come in a range of easily divisible denominations.  

Yet when it comes to P2P transfers, what are the primary disadvantages and advantages — especially when talking about ease of use and security?

It's hard to generalize since there are so many different approaches, but Bitcoin is a perfect example of the P2P concept taken to the extreme.

Let’s take a look.

The Pros of P2P Transfers

The most appealing benefit of P2P transfers is cost. All transactions happen electronically, with the system automatically matching buyers and sellers without requiring a middleman. As a result, Bitcoin and similarly designed P2P systems carry extremely low transaction fees ranging from 0-1 percent.

Many users also enjoy the transparent pricing that P2P networks offer. Currency conversions are publicly listed, and the exact rate is determined solely by supply and demand — not by governments or banks.

P2P networks are also more secure in many respects. With Bitcoin, for example, there exists a real-time ledger viewable for all to see. This makes it next to impossible for fraudulent activity to occur. Also, because very little personally identifiable information is attached to any transaction, users don't have to worry about data breaches.

P2P networks also offer anonymity, making currencies like Bitcoin a favorite amongst those who don’t want to be monitored by regulators.

The Cons of P2P Transfers

P2P networks have tremendous appeal, but they aren’t without their drawbacks.  Below are some of the key disadvantages of P2P transactions:

  • Refunds are nonexistent (or very hard to initiate). With no middleman involved, it's difficult to dispute charges after the fact. Ultimately, the merchant decides whether to issue a refund or not.
  • Unpredictability is another downside. Currencies like Bitcoin can easily be converted back to dollars, euros or yen, but there's no guarantee that you'll recoup the original value of whatever transaction you initiated with the P2P currency. 
  • The above also makes accounting much more difficult. Do you enter the original value of the transaction, the new value (after the currency conversion), or the underlying value of the product sold?

Arguably the biggest downside, however, is speculation. Bubbles can and do happen. The same can be said of any fiat currency. Yet governments can use monetary policy to help stabilize the price of paper money. Bitcoin’s value is driven exclusively by supply, demand and perception.

Are P2P Payment Options Right for Your Business?

There are countless users around the globe who prefer paying via P2P transfers — and many of these users are your potential customers. Therefore, it’s worth making this payment solution an option. 

Test it. See if it works for you — and scale up or down as necessary.

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