Everything You Need to Know About PayPal, Square Cash and Venmo

My sister and I keep a running tab with each other. She sent a bouquet of flowers for our cousin’s high school graduation; I owe her. I bought our Dad a dual-blade hedge trimmer for Father’s Day; she owes me. She got another cousin the wedding gift that we agreed to split; I owe her. You get the idea.

Neither of us is too concerned about the balance; we know we’re good for the money. But when I sent my sister a text inviting her to use the peer-to-peer payment app Square Cash so we could pay each other without sending checks, her response was, “Do you need me to do this?” She wasn’t thrilled about downloading yet another app, learning how to use yet another service and creating an account with yet another company.

Given my job as a tech reviewer, I often hit up my relatives and close friends for testing help. It’s understandable that they have symptoms of download fatigue.

Yet, when I polled a broader group, most of the people I talked to weren’t using peer-to-peer payment apps, even if they had heard of them. Whether it’s app overload or nervousness about digital transactions, P2P payments have a way to go before they catch on with a majority of my friends and family. Forrester Research, however, is hopeful: In a study published last fall, it updated its U.S. forecast for mobile P2P payments from $4 billion by 2017 to $5 billion in 2014.

This week, I dived into three P2P payment apps — PayPal, Square Cash and Venmo (acquired by PayPal in December 2013). Facebook also joined the fray in March, enabling fee-free P2P payments via debit card between friends in Facebook Messenger, but the feature is still rolling out and hasn’t been added in my app. My hope is that this guide will make you at least a little more comfortable with digital payments — even helping you pay your sister back on time.

The basics

All three of these apps work on iOS and Android, as well as via Web browsers. Square Cash originally launched using a system that involved sending an email to someone with the dollar amount in the subject line and “[email protected]” copied in the message, but the majority of people now use the Square Cash app, which doesn’t involve email. None of these apps requires NFC (near field communication) technology in your phone; all you need is a connection to the Internet. It took me just a few minutes to set up each app, entering details like my debit card number, ZIP code, full name and phone number for verification.

Privacy and security

All three of these apps want you to feel as secure as possible so you won’t hesitate to use them (and so they’re not on the hook for fraud). On iOS, they can each verify your identity with Apple’s Touch ID, the iPhone’s built-in fingerprint tool, every time you use them, giving you an extra layer of in-app security.

Venmo requires multifactor authentication if you sign up for the service on one device and then try to use it on another. PayPal confirms your identity using various security questions, and all three apps can send authentication codes to your mobile device to make sure you are who you say you are. You can also set up Square Cash so that every transaction requires you to enter the three-digit secure code on the back of your debit card.

Cut out middlemen using direct deposits

One of my favorite features of Square Cash is that the money you send or receive comes and goes directly from or to a bank account linked to your debit card. Most payments deposit instantly, according to Square, but some take one to two business days, depending on the bank. For example, a payment my husband sent to me on a Saturday night showed up in my bank account on Monday. But having money sent direct to your account is a big differentiator between Square Cash and PayPal and Venmo, which keep money sent to you in your account as a balance. From there, you have to take the extra step of transferring the money to your bank account.

Some people see an upside to keeping a balance in their account. PayPal points out that you can use this balance to pay businesses that accept PayPal, and its app has a cool feature that shows you nearby merchants that accept PayPal.

Not a popularity contest, but …

If you’re trying to pay someone or get paid using a P2P app, it helps if that app is popular enough to be used by a lot of your friends. PayPal’s app has 165 million active users globally; Square Cash and Venmo won’t say how many users they have, and are limited to the U.S.

Transactions made social

If you don’t mind sharing your financial transactions with the world, go for Venmo. If you sign up for Venmo using your Facebook account or connect your Facebook account to Venmo, whenever you send or receive a payment, the rest of the Venmo community sees this transaction. This Public setting is the default, though settings can be changed to share only with your friends or only with the people in the transaction.

Some people who really like adding a social element to their otherwise-dull financial transactions might be put off by Venmo’s limited social network ties, preferring other networks like Twitter or Instagram over Facebook.

Do any of these payments involve fees?

Square Cash transactions are free, but only work with debit cards — not with credit cards or bank accounts. Free transactions are limited to $2,500 a week. Square Cash Pro, which is aimed at small businesses, has no dollar amount limit, but charges 1.5 percent for debit card or bank account transactions. So if you’re paying a friend using Square Cash, it won’t cost you anything, but if you pay for your hairdresser who accepts Square Cash Pro, he or she will incur the 1.5 percent fee.

PayPal transactions that are made directly to or from your bank account or PayPal balance are free, but if you make a payment to a friend using your debit or credit card, you’ll have to pay a 2.9 percent transaction fee. PayPal has no limits to the amount of money exchanged per week.

Venmo is a fee-free app if you use your Venmo balance, bank account or debit card for P2P payments, but when you pay with a credit card you’ll get slapped with a 3 percent fee. Venmo limits users’ weekly spending to $299.99, but people can increase this to $2,999.99 by verifying their identity. This is done by either adding one’s Facebook account to the Venmo account or adding one’s ZIP code, last four digits of one’s social security number and birthdate.

Sending money around the world

PayPal’s longstanding clout gives it extra long reach: It lets people make P2P payments across borders, sending money in 25 currencies. Neither Venmo nor Square Cash lets you do this.

Hiding your identity

Maybe you’d rather not give your full name to the guy who buys your couch. For that, Square Cash has $Cashtags, or handles you can create to disguise your full identity. For example, I could go by “$KateTheGreat345” if I wanted to be a bit more anonymous. PayPal and Venmo don’t yet offer options like this.

As more and more people find it impossible to go anywhere without their smartphones, mobile payments stand a better chance of becoming the simplest cash alternative. Just make sure you know how to pay, and how much you can exchange to avoid pesky fees.