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The P2P Payment Revolution: How Embracing Digital Transactions is Empowering Self-Employed Individuals in the US

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The gig economy keeps growing, to the extent that it is completely transforming the employment landscape in the United States. According to the most recent data, there are 57.3 million freelancers in the country, and, one way or another, they all need to be paid.

In this regard, there is a method that has emerged because of its simplicity and convenience, which is peer-to-peer (also known as person-to-person) payments. Also known as P2P, these platforms enable individuals to instantly transfer and receive funds without the need for intermediaries. In the United States, PayPal pioneered this approach in 1998, and since then, new platforms like Venmo–which is now owned by PayPal–CashApp and Zelle have come to light.

All of them are processing hundreds of billions of dollars in annual payments.

Understanding the self-employment landscape

Before going into the main platforms and the market challenges and opportunities, it is important to understand the self-employment landscape, and why this group represents the most fertile ground for the rapid penetration of digital payment methods.

To further comprehend why self-employed individuals feel comfortable with peer-to-peer payment methods, let’s further look at their financial situation. First, they face income uncertainty, so they tend to use cash to save money on fees because every penny counts. Many P2Ps provide the same affordability factor. Secondly, they prefer to receive money immediately and avoid the risk of chargebacks, which is why many decide to only take cash. However, running a cash-only business comes with inconveniences and frustrations–such as having to look for change and the fact that up to 40% of Americans no longer carry cash–as well as with risk. When business owners only accept cash, they have limited financial visibility over the accurate financial state of their company. Also, they might face tax compliance challenges and have difficulty obtaining credit, which could hinder their prospects for scalability.

P2P Platforms Market Size and Growth

While the existing P2P platforms facilitate immediate financial transactions, if we analyze each of them and the services they offer, there is still ample room for growth, especially developing a solution that can cater specifically to the needs of the self-employed and integrates as many payment methods as possible.

In the United States, the P2P network that has processed the highest payment volume is Zelle, which is owned by the largest banks in the country. Since its launch in 2017, Zelle has processed $1.5 trillion.

The other dominant platforms are PayPal–which also owns Venmo and Xoom–and Cash App, which is part of Jack Dorsey’s Block. Their yearly volumes are around $230 billion (for Venmo) and $175 billion for CashApp.

In terms of growth, numbers are also promising. Reports indicate that in 2022, 66% of adults in the US engaged in a P2P payment. Paying for services was among the top three reasons why they did.

Market Outlook: Challenges and Opportunities

The market outlook is bright, yet, there are also risks. One of them is that there have been increased instances of fraud committed through P2P platforms, particularly because it is not always possible to reverse a transaction. This is being addressed by companies by introducing more authentication protocols.

Despite the existing risks, the McKinsey study shows that there are a number of opportunities for collaborations between banks and fintechs in order to increase scalability, which in turn helps profitability to grow. The same report states that checks still account for 10 percent of transactions, which opens up an enormous opportunity to bring that payment volume to the digital world.

Yet, an even larger field of possibility comes with finding a niche in the broader P2P payment market. For instance, by adding a social element to the platform, Venmo found its niche with groups of friends who use it to split bills, and its usage skyrocketed among younger generations.

Last, but not least, we need to not only consider the platforms themselves, but the payment methods that they support. For example, Zelle only allows payments from a user’s bank account, while Venmo and PayPal permit the use of credit cards, albeit for higher fees.

Final Thoughts

Even if P2P payments are simpler, the user still needs to download an app and go through the registration process. Zelle is the exception to this, since it is usually included in people’s banking apps, but that is irrelevant if they do not have a conventional bank account, which also happens in the United States.

Also, like its counterparts Venmo and CashApp, Zelle has its limitations, which gets us back to the payment method question. Because, at the end of the day, this is about convenience, those solutions that are able to integrate various payment methods successfully and offer them with affordable fees will be the ones who win.

Alexey Bogdanov is a serial entrepreneur with over 15 years of experience. He has founded five startups, with two of them generating $20 million annually in revenue each. Now, as the founder & CEO of fintech startup Tofu, Alexey is targeting the market of 9.84 million self-employed individuals in the United States, offering them a comprehensive solutions platform for tax calculation, invoicing, and expense tracking.