Editor’s Note: Today we have a guest post from my friend and fellow blogger Logan Lemberger. I’ve actually known him since we were kids and played in the same basketball league at our local park. Now a days though, Logan works for a cool new payments start-up and blogs in his free time.
I asked Logan to lay out all the current options there are for sending money within the US these days. Personally, I’ve been using Paypal for years and never had a problem with it. But for some reason, almost everyone I know seems to prefer Venmo even though they literally do the exact same thing. Paypal is free as long as you check the box that says the payment is for “family or friends”. I guess that step is too much for most people. Anyways, on to the post!
P2P Payment Landscape (& Headache)
We are bombarded daily with different ways to move money from one place to another. Whether it be paying for your fantasy league or last night’s dinner with friends, there are tons of choices for how to make digital p2p (peer-to-peer) payments.
In the end, it’s basically impossible to remember or understand the differences between all the money sending options. It seems every bank, large retailer or pseudo-hip app is trying to be the facilitator of your payments.
In this article I will break down a large chunk of the options available to send money from the United States to a recipient also located in the US.
Why does everyone want to be in this business?
The easy answer is to charge you the customer fees to move your money from one place to another. However, based on the company the fees fluctuate from zero to multiple percentage points. So other motives must be in place.
Many of the participating players are already in financial services and see these types of payments as either an add-on service for their existing customers, or as a way to introduce themselves to consumers they wouldn’t have worked with otherwise.
Additionally, for non-financial service companies (think Google, Amazon, or even Facebook), peer-to-peer payments can be identified as a complementary product to their existing services.
But another key factor is that it allows for companies to hold your money. Whether you receive money or load it to your account from another payment source, if the company gets to hold your money they are happy.
With the money in their possession they can use it for their own purposes. They earn interest on it via other financial tools, similar to the way a bank holds your money. It also makes it easier for them to upsell you on other products from them and their partners, creating a convenience factor for you to complete more purchases.
Below you will find a multitude of options for domestic money transfer in the US. There are many similarities between them. It can come down to convenience, existing familiarity, fee, recipient’s payout method or your own desired payment method.
The Old Old Old Fashioned Way – Checks
Physically mail a check to someone. The cost is simply the price of postage, but not the most time-efficient though. Safety also plays a factor as there is the risk of loss or theft.
The Old Old Fashioned Way – Bank Transfers
Initiate a wire transfer from your bank account, either online or at a branch.
If your recipient has an account at the same bank as you it can be a smooth process that is quick and can be devoid of fees. At the same time though, additional registration may be necessary from the recipient’s end. These sorts of added steps are not always welcomed by payment recipients.
If your recipient has an account with a different bank things get a little more messy. You will encounter a fee near $40 and have to wait a few days for the transaction to process. In today’s market many times it is not the best option.
The Old Fashioned Way – Money Remittance Company
A money remittance company like Western Union can provide domestic service but it is not their core competency. They are more focused on international money transfer.
Using a money remittance company will bring transfer fees anywhere up to $30 depending on the amount being sent and payment method. Keep these types of companies in mind for when you send money abroad.
When people think P2P payments, they generally think of PayPal. They were the first company to rise to the top of the industry and still maintain control today.
There are no fees if you use your bank account or PayPal balance to send the money. With a credit or debit card the fee is 2.9% plus $0.30 per transaction. The sender decides whether they take the fee or pass it along to their recipient. But honestly nobody wants a fee.
For sending occasionally to friends or family to which you owe money, its not bad. However if you want to consistently send or receive money you could incur fees. If you are going to leverage it for larger dollar transactions there is a little risk that PayPal will freeze and hold the funds for fraud reviews, which can be cumbersome to resolve.
PayPal may have its issues and detractors but they remain the leader and household name in this space.
Amazon allows consumers to send money for free with a verified bank account, credit or debit card. This is excellent to make payments to earn credit card points or to reach minimum credit card spending requirements, as previously discussed here before on YourPFPro.
A big issue with many of the peer-to-peer payment services is that both sides of the sender and recipient need to have an account with the company. Many people already have an Amazon account, so it’s easier for others to adopt. Amazon may ask for additional details to verify account details though.
The massive online retailer dabbles in payments primarily as a service to its enterprise clients like its third-party merchants and Kickstarter for example. However, having a no-fee option to move some money with bank account or credit card is advantageous.
Sleek looking and simple, Square Cash allows consumers to send money for free with a debit card. Notification is sent over email to recipients who input their debit card info to receive the funds. The whole process is pretty smooth for both parties.
The catch is that Square only accepts debit card. So no instant credit card points benefits here as with Amazon.
Square has a sending limit of $250. That limit can be escalated to $2,500 with proper identity verification. But if you need to pay someone back and aren’t bothered by not being able to use your credit card Square Cash is pretty excellent.
Dwolla aspires to be a new payment network. Essentially a modern version of Visa or Mastercard. One aspect of that is peer-to-peer money transfers.
With their own network, it is required that those receiving money register for a Dwolla account to accept the money. Transfers under $10 are free, with anything over that mark pegged at $0.25.
The rates are very friendly, but funds must be pulled from your bank account. Dwolla is an interesting alternative solely focused on circumventing traditional payment networks.
The hip, mobile-only, socially focused app is prominent among the college-age and young adult demographics. The company was launched to make PayPal-esque payments easier for the mobile fluent generation. They’ve quickly ended up being owned by PayPal though.
Payments from your bank account, Venmo balance, and most debit cards (presumably from larger banks) are free. Payments from credit cards cost 3% of the transaction total.
To some, being mobile-only may be less preferable than other providers which are accessible from a desktop browser as well. Additionally, the baked in social layer allows payments to be shared with others in your social network. This can lead to privacy issues for some.
Overall, if you are content using your bank account as a payment method, the price is right with Venmo.
If you don’t use enough Google services already, they will help you send money as well.
Google account holders are able to send money to friends or family. Even integrating the feature into Gmail like an attachment. Consumers can send money for free with their bank account or Google Wallet balance, or pay 2.9% to use a credit or debit card.
After receiving the money, it can be pushed to one’s bank account, be used in the Google Play store, or spent with a physical Google Mastercard.
But what about security?
Security is a frequently tossed around word online. It serves as a catchall for many different issues from identity fraud to hacking to social engineering.
In the end, there is a risk with all sorts of online commerce. The key point is that in almost all scenarios you will be made whole on disputed transactions. The most important part is monitoring your statements so no improper transactions sneak through on your dime.
How to Choose
There is not one clear winner here, but various options that may be used depending on the nature of the payment being made. Factor in the consistency of the payment, amount, when the funds are needed, how you prefer to pay, and the recipient’s existing financial relationships.
No matter which company you use, you should be able to send money online to your friends or family in the US in a cost and time-efficient manner.
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Logan Lemberger is working on disrupting the international money remittance market with WireCash. He also writes about the money transfer industry for The Enlightened Remitter by night. He can be found on Twitter @loganlem.