Peer-to-peer (P2P) payment systems are fast becoming a consumer favorite around the world when it comes to sending, saving, or swapping goods and assets.
From computing to eCommerce, P2P systems are changing the way individuals interact and make use of services – even with poor local financial infrastructure, or limited access to global products and services.
In the context of financial services, the P2P revolution is driven by not only technological advancements but also the growing need for financial inclusion and freedom. Let’s dive into how P2P works to grow access on the ground.
P2P Payment Popularity
One of the earliest names in the P2P payments sector is PayPal, followed by Venmo and Cash App – all of which further exploded in popularity with the rise of smartphones, especially in the developing world. Today, millions across the world use these platforms to transact locally and globally.
Most interestingly, many of these P2P payment services are often used for equally grassroots consumption, like purchasing a product on eBay – also a P2P ecosystem – or paying for global services, like consulting support.
Beyond former and current tech industry upstarts, institutional P2P is also growing in adoption. Popular payment platform Zelle, born out of a multi-bank partnership as an answer to the rise of Venmo and others, has already facilitated 2.9 billion transactions totaling $806bln in transaction volume across 120 billion consumers and small-business accounts in 2023.
While these institutional P2P solutions have a different approach to the disruptive app-based upstarts, the biggest shock to the P2P ecosystem came from a totally novel source: digital currencies like Bitcoin, as well as stablecoins.
The arrival of blockchain technology gave its users the ultimate control of their finances, unrestricted ability to transact globally from anywhere, and removed intermediaries like banks or startups from the equation – with both benefits and tradeoffs. P2P marketplaces like Paxful and the now-shuttered LocalBitcoins quickly sprung up to serve this industry in a safe and simple way. This created a bridge for those with few local alternatives to solve financial access issues, making these P2P marketplaces especially popular in underbanked regions like Nigeria, India, and Colombia. Today, of the approximate 611,000 daily Bitcoin network transactions, it’s estimated up to 10% of these transactions are happening peer-to-peer.
According to Roshan Dharia, CEO of longstanding P2P marketplace Paxful, where cryptocurrencies give people access to an alternative to the traditional financial network, actually buying these assets can sometimes be a huge barrier. “Cryptocurrencies may let users ‘be their own bank’ – but that’s only true if they can actually buy, hold, and transact in these assets,” Dharia suggests, adding, “That’s often where P2P comes in: it’s the first, best and sometimes only way folks in the Global South can get their first Bitcoin, even without a bank account.”
P2P platforms, after all, allow users from all over the world to trade or transfer funds without needing a bank account. Such platforms can be utilized for trading, remittances, service payments, and wealth preservation in a purely decentralized manner.
Remaking the Financial Ecosystem
While Bitcoin has emerged as the leading decentralized store of value, Ethereum and other layers 1 blockchains have led to the rise of decentralized finance (DeFi), which offers a permissionless and trustless system for even more sophisticated financial services like lending, insurance and synthetic assets – all without centralized intermediaries like banks.
The DeFi sector at its peak had a $175.5 billion value locked across various protocols ranging from DEXs, staking, yield generation, launchpads, tokenization, lending, and trading.
With a combination of P2P to buy some BTC or ETH, a self-custody wallet like Metamask, and countless DeFi tools serving trading, lending, investment, and many other financial service needs, nearly anyone is quickly becoming able to go “fully bankless” without giving up access to key services.
In fairly well developed financial ecosystems, accessing these services through a traditional bank or, even sticking with Web3, through a centralized exchange like Coinbase or Binance is a popular option, ecosystems with poor financial rails – numbering 1.5 billion unbanked globally, with billions more underbanked – remain shut out. This is where P2P platforms are playing a key role, helping emerging markets come online and participate in the global economy, while requiring only internet access, any one of countless payment methods (such as a bank wire, gift card transfer, or Venmo payment), a device, and a bit of education.
A Growth Explosion is Imminent
P2P systems are gaining a lot of attention from financial institutions too, with banks introducing their in-house services to offer instant transactions without needing an intermediary. The P2P payment market was valued at a whopping $3.21 trillion in 2023 and is projected to rise at a CAGR of over 15% in the next eight years.
In addition to P2P trading and payments, P2P lending platforms are also growing significantly. These platforms enable individuals and businesses to borrow money directly from individual investors. The lending options available here range from consumer loans, student loans, and real estate loans to small business loans and more.
What makes this market so popular is quicker loan approvals, flexible interest rates, convenient repayment terms for browsers, and attractive returns for investors. With that, the global P2P lending market is anticipated to grow from $147.05 billion in 2023 to $190.43 billion by 2031.
As P2P systems reshape the way we transact online, its use cases will continue to grow and become more widespread. As that happens, we’ll see more digital currencies and platforms that support them to meet this demand. However, that will bring increased regulatory scrutiny and the need for enhanced security. Keeping up with the evolving user preferences and striking a balance between privacy and security will ultimately ensure these P2P system’s ability to innovate while maintaining trust and compliance.
