What is Peer-to-Peer (P2P) Payment Fraud? A Complete Guide

It wasn’t that long ago that paying a friend back for a meal or drinks required going to the ATM to get cash—or if you go further back a bit, writing them a check. The rise of the peer-to-peer mobile payment app has changed all that, making it possible to send money with just a few taps of your screen. The downside is that it’s also opened a new avenue for scammers to try to get their hands on your money by using Cash App, Venmo or even Apple Pay.

At Addition Financial, we’re concerned about the increase in peer-to-peer payment fraud and we want all our members to understand how these scams can separate you from your money, what they look like, and what to do if you’re targeted. Here’s what you need to know to protect yourself.

What happens in a peer-to-peer Payment Scam?

A peer-to-peer payment scam is any scam that involves the use of a P2P payment app to trick people out of their money. The quick and casual nature of P2P transactions has created a mindset that can make it easy for criminals to convince people to send them money or to provide access to their accounts.

You might expect that all peer-to-peer payment fraud involves someone being convinced to send money to a thief but that’s not always the case. Some scams start with an unknown person sending money to their mark and evolve from there.
It’s important to remember that while P2P payment apps offer many of the same services as traditional financial institutions like credit unions, banks and credit cards, they don’t offer the same protection against fraud. There’s often no recourse if you lose money via a fraudulent P2P transaction and that means that vigilance is essential.

What are some common P2P frauds and scams?

Before we tell you what to do if you’re targeted in a P2P scam, let’s review some of the most common frauds out there, so you can identify and avoid them if you are targeted:

  • Payment for Goods and Services. During the COVID-19 pandemic, it became increasingly common for shops and businesses to enable contactless payment to protect their workers and customers. The dependance on this type of payment allowed a common scam leverage P2P payments for a promised product or service that was never delivered once the finances had been transferred to gain traction.
  • Unexpected Payments. Anybody who’s used a P2P payment app knows that it’s important to be careful to send money to the right person. A common fraud involves sending money to someone at random and then contacting them to say the money was sent in error and asking for it to be returned. The catch is that the money was likely obtained illegally and if you send money back, you’ll lose your money and may be penalized by the P2P platform you used.
  • Overpayments by Check. The next scam to be aware of evolved from an old check forgery scam. Someone (sometimes someone paying you for a gig or offering to hire you for remote work) sends you a check but claims that they “accidentally” wrote it for the wrong amount. They ask you to deposit it and refund the overpayment via a P2P transaction. The check is forged and you’ll be out your money and potentially in legal trouble if you comply.
  • Fraud Alert. Fraudsters have been sending phishing emails for decades now, and there’s a new twist involving P2P apps. You’ll get an email that looks like it’s from your credit union or bank notifying you of suspicious activity on your account. You may be asked to confirm your account information or send a payment to your financial institution to refund a fraudulent transaction. No financial institution will ever ask you to do either of these things.
  • Account Access. The last scam is arguably the simplest. A thief may ask to borrow your phone and once they have it, use it to access your Venmo or Cash App account to send money to themselves or to an accomplice. 

There are many variations on these basic themes. We’ll get into some specifics of what you can do to protect yourself, but the single most important thing is to approach any unexpected or unusual transaction with skepticism and caution.

What should you do if you experience P2P fraud?

What happens if you are targeted by one of the above peer-to-peer payment fraud attempts? The short answer is that you should report it and there are multiple places to do that to make sure that the authorities know and the fraudster is stopped:

  • Notify your credit union or bank. The first call you make should be to your credit union or bank to let them know what happened. If your personal information was compromised, you should also change your password and you may need to request a new debit or credit card.
  • Notify the P2P app involved. The next step is to report the fraud to the P2P payment app involved. Keep in mind that sending money using one of these apps is the same as sending cash and there may not be any recourse for you to get your money back. The one exception is PayPal.
  • Notify the local authorities. If you lost any money to a P2P payment fraud, you should notify your local police and file a report. The chances of getting your money back are slim but it’s still important to report the scam because it may protect others.
  • Notify the Federal Trade Commission. The FTC is responsible for tracking financial crimes, and you can file a report with them here. Here again, there is little chance that your money will be recovered. The benefit of reporting and providing as much information as possible is that it may help the FTC prevent future crimes.
  • Notify the credit bureaus. Finally, you should notify the three main credit bureaus, Equifax, Experian and TransUnion, of the fraud. Depending on the circumstances and whether your personal information was compromised, you may want to initiate a credit freeze to make sure that you’re protected.

It’s important to take these steps as soon as you realize you’ve been targeted in a P2P payment scam. If possible, take screenshots and provide a timeline of events to help the authorities investigate the crime.

How do you avoid P2P fraud?

While P2P payment scammers will do their best to trick you, there are some commonsense precautions you can take to protect yourself and avoid being taken in by P2P fraud. Here are some tips:

  • Be suspicious of any unexpected P2P payments you receive and report them to the P2P payment app immediately to protect yourself.
  • Don’t return money (or send money) to anybody you don’t know and trust, and that includes friends and family members. Remember, you have no real recourse if your money is stolen via a P2P transaction, so be cautious.
  • Be wary of any fraud alert that looks like it comes from your credit union or bank. Pay attention to domains (for example, a lot of phishing emails come from a longer, more complicated domain than legitimate emails) and if you have any doubt at all about the veracity of the email, don’t click on links. Instead, navigate to your financial institution’s website or mobile app and check your account there.
  • Avoid using P2P payment apps to pay for products or services you haven’t yet received. It’s one thing to scan someone’s Venmo if you buy a product from them in person and another to do so when you’re not familiar with a person or company and you do not have the product you ordered in hand.
  • Don’t lend your phone to anybody you don’t know and trust. A scammer may try to make you feel bad for not giving them your phone, but you can always offer to make a phone call or look something up on their behalf instead of handing over your phone to them.
  • Whenever possible, enable two-factor authentication for your P2P payment accounts. Options may include a biometrics scan or a code sent to your phone.
  • Listen to your gut. If something doesn’t feel right, pause and think about it. It’s easy to be reactive if you get an upsetting message about your account, but you’re less likely to be scammed if you stay calm and use common sense to guide you.

It’s unfortunate that it’s necessary to be so vigilant when using P2P payment apps like PayPal, Venmo, Cash App or Zelle, but paying attention and trusting your gut can go a long way toward protecting you and keeping your money safe.

Peer-to-peer payment security checklist

Keep Your Money Safe with Addition Financial

Peer-to-peer payment fraud is a real and ongoing issue. The information we’ve provided here will help you recognize the most common types of fraud, report a scam if you’ve been targeted by one, and take practical steps to protect yourself and your money.

Are you looking for a financial institution that has your financial best interests at heart and is dedicated to helping you protect your money and achieve your goals? Addition Financial is the answer! Click here to learn about the benefits of membership and apply today.

The content provided here is not legal, tax, accounting, financial or investment advice. Please consult with legal, tax, accounting, financial or investment professionals based on your specific needs or questions you may have. We do not make any guarantees as to accuracy or completeness of this information, do not support any third-party companies, products, or services described here, and take no liability or legal obligations for your use of this information.