7 Common Types of Peer-to-Peer (P2P) Payment Fraud

The use of peer-to-peer payment services has become commonplace. Many of us use these apps to reimburse friends for dinner or other expenses, to contribute to shared activities or even to help family members who need financial assistance. There’s no denying the convenience of sending money with a few taps on your phone, but there are risks involved as well.

With the rise of P2P payments, there has been an increase in P2P payment frauds. It’s essential to understand what an online fraud looks like and what you can do to avoid being scammed.

Here at Addition Financial, we want our valued members to be informed and aware, so they don’t lose money to a scammer. Here are seven common types of payment fraud that you should learn to recognize and avoid.

What is digital payment fraud?

Digital payment fraud is any type of fake or fraudulent transaction that involves one party using a digital payment platform or app to deprive someone of money, merchandise, or their private information—which may then be used to carry out additional crimes.

Digital payment platforms have become hugely popular, with many people using apps like PayPal, Venmo, Cash App or Zelle to send money to friends and family members, and even to businesses, instead of writing a check or using a credit or debit card.

One of the reasons digital payment fraud has become so widespread is that sending money using these apps is exactly like paying someone with cash. Most of these apps don’t provide any protection to users who are victims of fraud. (PayPal is an exception). That sets them apart from credit cards, which limit the amount of money you can lose if someone steals your card or defrauds you.

Digital payment fraud can take many different forms. The most important thing you can do to protect yourself is to send cash only to people that you know and trust. That one simple step can eliminate a lot of risk.

7 types of digital payment fraud

One of the trickiest things about avoiding a digital payment fraud attack is that it can take many different forms. Some are new variations on scams that have existed for a long time, while others are unique to digital payment apps. Here are seven you should know about.

#1: The accidental transfer

The first type of P2P payment fraud you should know about is the accidental transfer. The setup is that you receive an unexpected payment from someone you don’t know. That person contacts you and asks you to send the money back to them. It seems like a fair thing to ask but if you do it, you could wind up in trouble.

The money that was sent to you was almost certainly obtained fraudulently. If you send it back, you become part of the fraud. The P2P company may hold you responsible or even take money from your funds.

#2: Suspicious activity alert

Our next fraud is one that has been used for a long time and has been updated for digital payment apps. The setup is that you receive communication that seems like it’s from your bank telling you that there is suspicious activity on your account and asking you to send money to either reverse the transaction or verify your account.

Of course, the email is not from your bank but from a scammer. No legitimate financial institution will ask you to send money to them to reverse a transaction or to verify your account. If you send money to the P2P address provided, you’ll be sending it to a scammer and will most likely never get it back.

#3: Information confirmation

Another version of P2P payment fraud is when someone contacts you claiming to represent either a merchant or the fraud department of your credit union or bank. They want you to verify your personal information, including your account number, username, debit or credit card number or even your Social Security Number.

The goal here is to steal your information to set up a P2P account that the scammer can use to send money to others or make purchases. If you provide your information, you’ll lose money and will have little or no recourse.

Addition Financial will never contact members and ask for the following information:

  • Credit or debit card PIN Numbers
  • Online Banking passwords
  • All 16 digits of your Addition Financial debit or credit card number
  • The CVV code on the back of the debit or credit cards

If you have any doubt about the authenticity of a call from someone claiming to represent Addition Financial, hang up and call the Addition Financial Contact Center at (407) 896-9411 or (800) 771-9411, outside Orlando.

#4: Disappearing merchandise

It has become typical for people to buy items online or using a mobile device. It’s easy and convenient and we’ve all become accustomed to paying for products and services before we receive them. The setup of this scam is that you get a request from a merchant or service provider asking you to send money via a P2P app.

If you send that money, it’s likely that you will never receive the product or service you paid for. If you use a credit card to buy a product, you have some recourse if you never receive what you bought. That’s not the case with P2P transactions. As a rule, if you’re buying from someone you don’t know and trust, your best bet is not to pay until you receive the product.

#5: Work from home deposit

The next scam is particularly important for remote workers and gig workers to be aware of because it targets them. The setup is that you get hired to do remote work and the company that hired you sends you a check to deposit with a request that you then forward some of the money to someone else using a P2P service.

This is a version of an older scam that asked people to write a check or wire money to a third party. The check in this scam is always forged. If you deposit that check, your credit union or bank will catch on and if you’ve written a check against those illegally-obtained funds, you’ll be out the money you paid.

#6: Overpayment scams

If you’re someone who sells products online, then you should be aware of overpayment scams. The setup is that someone offers to buy a product you’ve listed on Facebook Marketplace or somewhere else. They send you a check, but oops, they wrote it out for too much money. They ask you to write them a check for the difference.

As you can probably tell, this scam has a lot in common with the work from home scam. The check they gave you is almost certainly forged and if you refund them the overpayment, you’ll be out the difference when the fraud is detected.

#7: Phone borrowing

If you use one or more P2P payment apps, you know that it’s very easy to initiate and complete a payment. You may not even need to log in to do it! For example, if you have the PayPal app on your phone, you can send money to friends and family without logging in, although you need to verify your ID to transfer money out of your account to your bank.

This scam involves someone asking if they can borrow your phone. Once they have it, they scroll through your apps, find your P2P payment options, and send money to themselves or an accomplice.

How do you protect yourself from payment fraud?

We want you to know that there are things you can do to protect yourself from payment fraud. Incorporating these tips will greatly reduce the likelihood that you’ll fall for a P2P payment scam and help you to keep your money safe:

  • Be wary of any unexpected email, text message or phone call that seems suspicious, particularly if the person on the other end says they are reaching out on behalf of your credit union or bank. An example would be that emails from your credit union come from a traditional domain, like @additionfi.com, but emails from scammers might be from different domains than usual.
  • If you’re suspicious of an email or text, don’t click on any links. You can hover your mouse over an email link to see the URL. This one simple step is often enough to avoid falling victim to a scam because the URL won’t match your financial institution.
  • If you want to check your account to ease your mind, never click on an embedded link that you don’t trust. Instead, navigate directly to the bank’s website or use their mobile app to log into your account and check it.
  • Never cash a check or accept a payment from someone you don’t know and trust. If you’re selling something, meet the buyer in a safe place and only accept cash.
  • Remember that most businesses do not use P2P payment apps to conduct business transactions. Your safest bet is to pay for products and services when you receive them and get a receipt.
  • Be wary of work from home offers that sound too good to be true—they probably are.
  • If you see suspicious activity on your P2P payment apps, report it to the app, your financial institution, and the police. You may also want to report it to the Federal Trade Commission.
  • Don’t lend your phone to anybody you don’t know and trust—and that includes friends and family members who may engage in suspicious or unethical behavior.
  • Whenever possible, use two-factor authentication. You can change your settings with most apps to require them to text you a code or require a biometrics scan for transactions.

Following these payment fraud prevention tips will help you to keep your money safe and avoid being caught up in peer-to-peer payment fraud.

Peer-to-peer payment security checklist

Protect Your Money with Addition Financial

You work hard to earn the money you have and it’s important to keep it safe. Avoiding the seven common types of P2P payment fraud is a must, and you can use the tips we’ve provided here to protect yourself.

Are you in search of a financial institution that cares as much about keeping your money safe as you do? Addition Financial is here to help! Click here to read 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.