Peer to peer payment (P2P) apps such as PayPal, Cash App, and Venmo have become increasingly popular in the past few years—especially as the pandemic underscored the need for contactless payments. According to Pew Research, over 75% of American adults have used a P2P app. Chances are, you’ve used one of these apps in the past to send money to a friend or relative and found it effective. Because of that adoption, some businesses have also begun experimenting with using P2P apps as a way to send tips to workers instead of handling cash—and this comes with a few drawbacks.
If you’re a restaurant manager or owner wondering “should I tip out my restaurant staff using Venmo and other P2P apps?” read on to discover why it might be a recipe for disaster.
1. Lack of oversight and dispute processes
Yes, P2P apps make it quick and easy to send payments, but the limited number of steps you take to push out those payments can actually increase the risk of paying the wrong person. If you accidentally send money to the wrong person using a banking system, you can typically get a refund by contacting the bank. With P2P apps, there’s no mediator involved and most do not have a refund dispute system in place.
This might not be the end of the world if you’re using Venmo to send money to a friend one time; but if you’re using it to constantly send out tips at the end of each day, your risk of making a mistake (and having it be a costly one) increases.
2. Increased fraud risk
Since P2P apps are so accessible to the general public, they’re frequent targets for scammers. These sophisticated actors create fake accounts to impersonate real people in order to trick managers into sending them money. If a hacker is able to access a manager’s account, they can steal a large sum of money from the business and/or send that money to unauthorized individuals. And because there isn’t usually a great dispute process in place to recoup those funds, you might not be able to retrieve them. With cyberattacks becoming more prominent than ever, it’s important to mitigate the risk of fraud for yourself and your business whenever possible.
3. IRS and tax implications
A new IRS rule recently declared that anyone who receives more than $600 through a P2P app like Venmo or Paypal must file and furnish a 1099-K form to report the income they’ve collected. Our Gig Payments Report found that only 43% of workers were aware of this new rule for receiving payments through P2P apps and 57% felt like they needed more research, proving that if you’re sending tips consistently to your staff via a P2P app, you could be setting them up for confusion or failure to comply with these new rules.
4. Fees for payments
Many P2P apps charge transaction fees for moving money instantly to another bank account, meaning your business could be spending unnecessary funds just to send payments quickly to your staff. You shouldn’t have to pay to send payments when there’s a free alternative available to you that can get money in the hands of your employees quickly and securely.
5. No federal deposit insurance
While many digital wallets and apps come with a debit card and make it easy to move money between financial accounts, they aren’t always backed with automatic protection or partnered with an FDIC member bank. The Consumer Financial Protection Bureau issued a consumer advisory earlier this year noting that many of these P2P apps can help you move money into and out of a linked bank account, credit union account, or card account, but that money may not be protected by an FDIC member bank.
A fast, secure alternative
We get the appeal of P2P apps: They allow you to swiftly move money in order to get people paid digitally. But if you’re looking for a digital tip payout solution for your restaurant, P2P apps may be more trouble than they’re worth.
Branch’s suite of instant payment tools for restaurants can help you achieve fast, secure payments without the drawbacks listed above. We provide employees with a free digital account and debit card so that you can send them wages, tip payouts, mileage reimbursements, and other payments as quickly as you like—even after every shift. (And we even work with minors 14+, underbanked, and under-documented workers, too.) Branch accounts are backed by banking services from FDIC member Evolve Bank & Trust. Your workers can go home with tips and other payments digitally deposited in their account, boosting morale and helping you eliminate cash monitoring headaches in the process. If your workers ultimately want to transfer their money through P2P apps, they can easily and securely link their Branch account to their preferred apps—without putting your management team at risk.
Stop worrying about the security and speed of your payouts by switching to Branch for restaurants. Learn more here or by contacting us at firstname.lastname@example.org.