Peer-to-peer (P2P) transactions are businesses that have a direct relationship. For instance, peer-to-peer lending works when a lender gives out money to an interested party and the borrower repays that loan. Money is directly exchanged between these parties instead of going through a third party like banks or other financial institutions. Peer-to-peer transactions are growing at an exponential rate in the global economy. In fact, they made up nearly 45% of all global gross merchandise trade by value as of 2023. They’re also becoming popular among small and medium enterprises (SMEs) as well as large organizations. However, not enough people know how peer-to-peer transactions work or realize their potential benefits. Read on to learn more about this emerging trend in business.
What is Peer-to-Peer Transactions?
Peer-to-peer (P2P) transactions are businesses that have a direct relationship. For instance, peer-to peer lending works when a lender gives out money to an interested party and the borrower repays that loan. Money is directly exchanged between these parties instead of going through a third party like banks or other financial institutions. When you do any kind of business with a friend, relative or acquaintance, it’s peer-to-peer. When you go to a gym to exercise and use a machine with others, it’s peer-to-peer. When you go to Lulu and sell something to someone else, it’s peer-to-peer. Peer-to-peer transactions are growing at an exponential rate in the global economy. In fact, they made up nearly 45% of all global gross merchandise trade by value as of 2023. They’re also becoming popular among small and medium enterprises (SMEs) as well as large organizations.
The Benefits of Peer-to-Peer
– People are more likely to trust each other – How do you think people trust each other? Trust is not something that you can just give out. It only comes from the people who are close to you. A peer-to-peer transaction, therefore, lets you trust people you know instead of strangers. This can lead to more business and friendship opportunities.
– Lower Risk – Compared to other types of transactions, peer-to-peer trades are less risky. This is because you don’t need to transfer your money to someone that you don’t know. You only exchange goods or services. As such, there’s less risk of someone cheating you.
– Greater Exchange of Goods – Another reason why peer-to-peer transactions are great is because they allow for greater exchange of goods. While this is not always the case, it’s common that someone wants to buy a good but doesn’t know where to get it, how much it costs, or how they can sell the good. Peer-to-peer transactions are the solution to all these issues. They allow you to connect with people who want to buy certain goods. You can find buyers and sellers who want to exchange goods without the need to know each other’s names. This, therefore, also reduces the risk of being scammed.
How Peer-to-Peer Works?
The way peer-to-peer works is straightforward. An investor posts an item for sale. Then, they give out a request for people who want to buy that item to contact them. The person who wants to buy the item only has to contact the seller and negotiate the price and terms. After the transaction is finalized, the seller pays the money to the buyer. There are no intermediaries like a bank or other financial institution. The transaction is, therefore, completed directly between the buyer and the seller.
Pros of Peer-to-Peer Payments
– Greater Exchangeability – The greatest advantage of peer-to-peer transactions is how easily they exchange goods. Whether you want to sell or buy a certain item, you don’t need to know its price. All you need is the name of a buyer and a seller.
– No Risk of Fraud – Another reason why peer-to-peer is great is that there’s no risk of being scammed. This is because there’s no intermediary like a bank. If there’s no transaction, then there’s also no money that gets exchanged.
– No Capital Requirement – The beauty of peer-to-peer transactions is that they don’t require any capital. This means that you can conduct a transaction even if you only have a small amount of cash to spare. You can also conduct transactions even if you don’t have a smartphone.
– Cost-effective – The best thing about peer-to-peer transactions is that they’re extremely cost-effective. This is because you can conduct a transaction even if you only have a few dollars to spare. This can be done via an SMS or email.
Cons of Peer-to-Peer Payments
– Time-consuming – One of the disadvantages of peer-to-peer transactions is that they’re time-consuming. This is because they involve the buyer and seller communicating with each other. As such, a transaction may take hours or even days to complete.
– Certain Items Cannot Be Sold – Another disadvantage of peer-to-peer is that it’s difficult to sell some items. This is because there are no specific platforms for selling them.
– Difficulty in Converting Funds – The last disadvantage of peer-to-peer transactions is that they can be difficult to convert. This is because you only use various cryptocurrencies including Bitcoin and Ethereum to complete the transaction.
Conclusion
Peer-to-peer transactions are a great way of doing business. It doesn’t have intermediaries like banks or other financial institutions. Instead, it has people who are referred to as “peer.” You only have to find a seller and a buyer who want to exchange goods or services. As the peer-to-peer transaction trend continues to gain traction, it’s important that business owners become familiar with the benefits and disadvantages of peer-to-peer transactions. By doing so, they can create a more seamless experience for their customers.
