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Lending Money to Friends

Updated on May 19th, 2022

I recently went on a vacation with my best friend overseas. During the course of the weeklong trip money became an issue. Not because we ran out of it. But because it was difficult to keep tabs on who paid for what. I would pay for a hotel room one night; they would take care of the room the following night. I paid for lunch; they took care of dinner. We didn’t have to lend money, things were easy.

At the end of the trip we tallied up our expenses and discovered that I owed them a couple of bucks. The problem? I didn’t have any cash on me. If I were able to send the money electronically, I wouldn’t have to worry about waiting to pay them back when we got home – or even forgetting to pay them back altogether. Unfortunately, they’re old school and didn’t have a mobile payment system downloaded on their phone.

As the mobile payment industry continues to explode, there’s honestly no excuse for me, or anyone for that matter, to be put in this situation again. Despite the fact that “nearly 3 in 4 Americans would gladly lend money to friends and family,” (particularly Millennials), asking to borrow money is awkward. And, according to a study conducted by PayPal, can lead to stranded relationships. In fact, the study found that 35% of people who owed money to a friend in the U.S. ended up losing that relationship.

Thankfully, peer-to-peer payment systems are here to prevent the awkwardness of borrowing money and making it convenient to pay back your friends just by using your phone.

How Do P2P Payments Work

A peer-to-peer, or person-to-person, payment (P2P) is simply the ability to transfer funds from your bank account or credit card to your friend’s account electronically.

Typically, a P2P is completed by one of the two approaches:

The first approach uses a third party vendor or payment gateway. If you’ve used PayPal, for example, in the past, then you’re already familiar with this method. You create an account, enter your bank or credit card information and send a specified amount to your friend – either online or through an app. The catch is that they also have to have an account with the vendor since you’re using their email address to transfer funds.

The second approach is to use an app developed by a bank or financial institution. You enter the amount of money you wish to transfer, as well as the email address or phone number of the recipient. The recipient will then be sent a notification and instructions on how to access the funds. In most cases, they simply enter their bank account information and routing number into the online interface or downloaded app to complete the transaction.

However, mobile apps have simplified this process. Just download the app and enter basic details like your name, card number, zip, and phone number number – this is for for verification purposes. As long as you have an internet connection, you can start sending and receiving money between you and your friend.

How Secure and Private Are Mobile Payments

Security and privacy are two of the most common concerns regarding mobile payments. As IBM’s Security Intelligence points out, “Most mobile payment solutions are very secure — in fact, more secure than the old-fashioned swiping of a credit card at a point-of-sale terminal.” That doesn’t mean that you should completely let your guard down. To avoid any headaches, it’s recommended that you:

  • Download apps directly from app stores like Apple’s App Store and Google Play.
  • Have your phone settings set so that it won’t download apps from unofficial stores or untrusted sites.
  • Double check to find out if the app is “safeguarded against attacks such as reverse engineering, tampering or malware insertion.”
  • Limit your transactions over public Wifi networks.
  • Trust your gut. If something smells fishy, do not proceed until you can verify that it’s legit.

Additionally, most of the apps have included extra layers of security to protect your privacy and improve security. Examples include Apple’s Touch ID and Venmo’s multifactor authentication when using multiple devices. Other apps rely on a series of security questions or asking you to enter the three -digit security code found on the back of your card.

Finally, some apps, such as Square Cash, give you the option to create handles instead of using your name or email address. While not all apps have this function, there are companies who realize that you would prefer to remain anonymous. As the blockchain continues to be a hot trend, expect this to become a bit more commonplace.

Mobile Payments Cut Out the Middle Man and Save You Money

If the security and privacy features, along with the convenience, weren’t enough to convince you that mobile payments are a great option when lending money to friends, then here’s two final advantages; they cut out the middle man and can save you money.

Most mobile payments allow you to send money directly into a bank account or balance almost instantly. For example, I can send my friend $100 that I owe them and they’ll receive that money in a just a matter of minutes. I didn’t have to deposit anything into my bank account, as long as I had the funds already in my account, and they didn’t have to deposit a check into their account. That $100 is now in their balance or bank account without have to lift a finger.

Finally, mobile payments are free when transferring funds to your friend. For example, allows you to send money person to person for 100% free. No limits. No questions asked. And, unlike traditional bank accounts, you don’t have to worry about any additional fees or charges unless you pay with the app’s credit or debit card. But, since you’re just lending money, those fees won’t apply to you.

Albert Costill

Albert Costill

Albert Costill graduated from Rowan University with a History degree. He has been a senior finance writer for Due since 2015. His financial advice has been featured in Money Magazine, Fool, The Street, Forbes, CNBC and MarketWatch. He loves to give personal finance advice to millennials.

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