P2P Payments

Rinat Malik: 00:00:00

Hi, everyone. Welcome back to Tech Talk, a podcast where Amit and I talk about all things tech. We don't just talk about tech, we also talk about its implication on our society, and everywhere else. So today we're going to talk about a topic, which is more FinTech related topic and it's an interesting one. It's peer to peer payments and within our audience if you guys are into FinTech, you're gonna really enjoy this conversation because it's to do with payments, when it's sort of done through peer to peer systems. And I actually have a very little understanding of it, and I'm actually looking to understand and learn a lot more from Amit today. Thank you Amit for coming up with this topic. Let's, let's talk about p2p payments.

Amit Sarkar: 00:00:55

First thing I wanted to correct you about the topic is that it's not peer to peer networks. We just using the regular networks, it just how it's designed. The reason it's called peer to peer is because it's person to person. So it's similar to say you download a file using BitTorrent protocol on which we've already spoken about. So a file is split across 1000 pieces. And then the person who's trying to see the file has the has the complete file. So it's similar to BitTorrent protocol where a file is split into multiple pieces and then the person who has all the pieces is a cedar and the person who has who doesn't have all the pieces is a leecher or you can say a peer and what happens is that when someone else downloads, they become a cedar. So now two people have the same file and they have all the pieces and they can now give it to someone else. So But here, the whole thing is just being managed by the network protocol. And there is no third party involved in any way. Okay? So that's why it's called peer to peer and then there is peer to peer lending. So Peer to Peer lending means that there is a middle aged, where they collect money from people and they distribute that money to other people. So it's like bank, but it's different in a way. You're not opening an account. You're just depositing money with the guarantee that you will get some better rate of interest compared to a normal savings account. And then using that money, the company that gives it to someone else, so it's peer to peer lending. And peer to peer payments means that if I want to send you money, but I don't have your bank account, how do I send money? and that's what it is all about. So how to send money to Rinat Malik without knowing his account number.

Rinat Malik: 00:02:53

Right. Okay, that's quite interesting in two different ways. So you mentioned peer to peer lending and sounds like with that’s a financial product. And peer to peer payments is a like a process through which a payment or a transaction is sort of carried out. So these are two different things. And we thought we're going to talk about peer to peer payments, not peer to peer lending because lending that's financial product are not necessarily related to a technological sort of a sort of a technical solution. But the transaction which is done peer to peer, that's the peer to peer payment system, and that's what we're going to talk about and that's it, it's a good, good thing to sort of understand the definition of these two so we can understand what we're talking about. Thanks for actually pointing that out. So yeah, peer to peer payments as a consumer. I think a lot of our audience have already experienced peer to peer payments as you were we were talking earlier and as you mentioned, PayPal and a few other sort of names or organisations or sort of solutions that consumers would know about, which utilises this peer to peer payments, technology. So to tell us more about that.

Amit Sarkar: 00:04:16

So basically, peer to peer works in a way that you don't need a bank account number. So normally a bank account has two parts, one is the account number and the other is the branch number. Most of the banks will have a branch and they will have a branch code or a unique identifier for that branch and then an account associated for your savings account or current account in that branch. So you need these two details. Then you also need the bank details. In the UK we have something called a sort code and account number. The sort code will identify the bank and the branch and the account number will identify whose account it is. Okay? So if you give these two details, then whenever you're trying to make a payment it knows which bank to transfer which branch to transfer, which account to transfer. Now I need all these details. So normally if I add you in my bank account, I'll need your name. I need your account number. I'll need your sort code in the UK so I need three things. And that's a very painful process. So where peer to peer payment now comes, says that I don't need all these details. I just need maybe your email address or I just need your phone number. And then we can just transfer money to each other. So if people those of you who are living in the UK, they must have seen it in the revolut or Monzo or Starling. So these are online bank accounts online only bank concept. They don't have a physical branch. So their sort code is always the same they don't have multiple sort codes. Okay? so now, if you're on starling and someone else is on Starling, you can just transfer you can just find their name and transfer money. Okay?

Rinat Malik: 00:06:02

That's pretty cool.

Amit Sarkar: 00:06:04

Same thing in Monzo. And same thing in revolut. Just try to search for the name and you will get a handle like a Twitter handle or a Instagram handle or a YouTube handle now. So you'll get a handle say Amit Sarkar or @Rinat.malik whatever. You can then confirm that okay, this handle belongs to the person that you want to send money and just click on it and send money. So you don't need the name. You don't need the account number you don't need the sort code. So that's peer to peer payments.

Rinat Malik: 00:06:35

Right okay. So from a consumer perspective, or from a newbie perspective, if you like. So if we zoom out a little bit. Any transaction is a form of communication. And whenever you're communicating with someone or whenever you're making any transaction, you need an address where it needs to go before the address used to be made up of account number Sort Code and the name of the person receiving it. Now with the advent of technology, we can shorten address to a much more manageable, meaningful address which is basically the person's email address because the internet has kind of evolved in a way that the email address is always a string of unique characters. I mean, if you think about it, it's actually quite fascinating because email, you know, you can't, you can't like you can open email accounts in Outlook, Yahoo, Gmail, wherever. But you can't. You can never have a duplicate email address for you know, for two people can't have the same email address in any way. Because Gmail doesn't allow you none of the providers allow you to and then if you take the providers name into account of the whole email address, then there you go. That's like a full, unique piece of string that is only attached to you. And obviously because of all the, you know, the high security of each of these email providers. Now it's a secured sort of piece of string that only you can access. So that is a very ideal thing to use, as, you know, banking transactions because, you know, it's difficult for anyone else to get hold of it.

Amit Sarkar: 00:08:33

But you also forget that mobile numbers are also unique. So mobile numbers are also an actually mobile numbers are linked to your physical device. So you have a physical device, that physical device is on you. Email addresses, it's not on you, okay? So mobile numbers are actually still more secure and still more unique, because you're holding something in your hands and you're going around with it all the time. And it can work without the internet as well. So you just have your mobile data connection so that's it.

Rinat Malik: 00:09:07

That’s the added benefit of mobile number says you don't even have to use smartphones with email addresses. You need to have connection to the internet and have an interface within your phone to access the email address in one way or another. So that needs to be a smart phone. But with just mobile numbers, you could just communicate with a bank through text messages. So you don't even need internet connection or a smartphone which is more accessible to many people. Around the World in many different countries. Where developing countries where internet is not easily accessible, they can still make use of or utilise this, this method of communication.

Amit Sarkar: 00:09:49

So that's what happened in India. So using something called as Paytm. but India, I mean, let's rewind back a bit. I mean, you can transfer money using mobile numbers, but you still need an application to do that for you. And for that application, you will still need internet. So more or less, you'll still need some kind of internet service. Either through your mobile data connection or through your Wi Fi connection, but you will still need the internet connection. So sometimes what happens is you download an app, and the app will ask you to register an account. It could be a banking app as well. Some of the banks like revolute, Starling and say Monzo. They allow this feature. So once you download the app, you open an account, you register for a handle and you get your bank account, number and sort code, then you can try to search through your contacts through your mobile phone contacts, who is there on the Monzo network already? So again, bear in mind, we are trying to now send money when we are trying to send money in starling only to people who are on starling or in Monzo only two people who are on Monzo so if I want to send now money from my Starling account to someone say Rinat Malik, who has an account in say, Santander, I have a account at HSBC. How do I do that? So that's where we can now link instead of handles. We can ask, okay, mobile numbers, because normally whenever you go for a banking application, they'll send you an SMS send an email for security code, but most of the time it's a mobile number. So if the mobile number is already linked to a bank account and say Santander, you're on Santander. I'm on HSBC and Santander also has a mobile number than the two mobile numbers are linked to a unique bank account. And they are now connected. So now I should be able to transfer money just using a mobile number. So that is something called as PayM. That's started. But it's now closed because there are some new payment methods that have come up. But this was the way where you could just use the mobile number and then transfer money. So this was again a very modern way of transferring money to someone's account even though they are two separate bank account networks.

Rinat Malik: 00:12:13

That is a good. That is one of the sort of the ways technology has made our lives easier, because you don't have to remember and you know, even a lot of the times we need to make transaction to people who we don't know very closely you know, outside of friends and family. And you know, maybe you'll just do that one transaction and then you won't need any more of that anymore. For example, if you're selling your you know, something secondhand, you know, your phone or whatever. So you will meet this person maybe online. From maybe Facebook marketplace and then you want to make that transaction. That transaction needs to be safe and secure. But at the same time, you don't want to be having to face a lot of hassle in terms of making the transaction cash is not always the most secure way of doing things. So this is actually a really good enabler in terms of how we want to live our lives. And this is one of the small ways how technology's making our lives easier.

Amit Sarkar: 00:13:24

Exactly. And I mean, if you look at it, I mean, these payments, they help to bypass this. Not say bypass, but make it convenient, just because you don't have to remember a lot of stuff and you don't have to ask a lot of stuff. So mobile numbers normally I'll have your mobile number, even though if I don't have your email number, email id, I'll still have your mobile number because it to make a call to you. So by default, everyone has a mobile number because we talk to each other. We use WhatsApp, so we'll have the mobile number as well. So that's all already given. So in India during COVID and people wanted to make contactless payments and also during D monetization, where they suddenly removed the currency. I forgot the denomination. So they suddenly removed the specific denomination of currencies out of circulation that they said it's no longer a legal tender and people have to now transfer money from one account to another. And how do you make payments to say, if you don't have cash, how do you make payments?

Amit Sarkar: 00:14:29

I mean, cash in hand, you still have money in your account, or you can deposit money in your account. So that's when Paytm came and it became very popular, so Paytm revolutionised because you have a Paytm account, and someone else's Paytm account and they can transfer money to each other. It's like PayPal. So PayPal works in a similar way. I have an email address, a business has an email address. So suppose I want to say I want to send money to Rinat, I can use his email address and there I can just send him a poke him money on paypal. Okay. And there is a business it has provided me certain services, say I've bought something on eBay. And now it's asked me to make a payment through PayPal. So it will give me an email address. Using that email address. I'll put it in Paypal, I'll say I'm making a payment of business, and then I just make the payment. So I don't need to know the bank account number. I don't even need to know which country the account is sitting. So now it's another level. So now you can do cross border payments, just by knowing the email address. So that's how paypal became so popular. It is still very popular. Because we

Rinat Malik: 00:15:33

Yeah, that's one of the things I actually wanted to ask that you know, when you were talking about peer to peer payments, you know, first you talked about within the same bank and then interbank transaction, but then what about inter country transaction? and that's another next level of enabling or making lives easier for the consumer and how does that work? Because there is there is there must be some sort of foreign currency exchange that needs to happen when these transactions are being made. Are they being charged? an exchange rate? or like a currency conversion fee? like the banks do or is it sort of managed as part of the transaction?

Amit Sarkar: 00:16:16

So I think PayPal charges money for a transaction, I think when you withdraw money, because it's there in your PayPal account, and then you have to withdraw or withdraw money to your bank account. So I think that's when it charges. Plus you can accept the payment in different currencies, but your PayPal account is linked to a country so like I have a PayPal account in India and I have a PayPal account in UK. Those accounts are different. Their email addresses are different. And the accounts linked to it are different. I cannot link a UK account to my paypal India account. I just can’t. That's how PayPal jurisdiction is, but I can still transfer money to my bank account using this Paypal method. And, I mean, it's not peer to peer but I use TransferWise to send payments, cross border payments to India. So how I do it is that I have a TransferWise account, and I've added my Indian account number, and then I just transfer money into it. So instead of transfer money to my account directly, I transferred to a UK account of TransferWise so I transfer money to TransferWise in the UK, and TransferWise then transfers money after receiving it to my Indian account. I don't know how they do it, but sometimes they do it instantly. I think they're using some kind of a blockchain protocol or some protocol where you give money to a UK account. And once they confirm they transfer of money or they maintain cash and both countries so based on how many pounds or Indian currencies I'm buying, they will transfer the money

Rinat Malik: 00:17:54

right okay, that's very interesting. I mean, I also use TransferWise. And it's really good service you have the mobile App, TransferWise I think they've now renamed themselves to Wise. Just Wise. But yeah, I'm actually quite happy with their service. And I don't know whether they maintain both currencies because they transfer everywhere in all of the countries in the world. And it would be quite difficult to do that. And I don't know if it's, there is the you know, in terms of currency exchange, there are legal requirements in different countries as well. They might have to do the transaction every time you make a transaction that might be a legal requirement. Anyway. I don't know how the background of it works, but it actually is very convenient, because I just do it over with my phone. And I do the transaction from my bank account to TransferWise within the wise app, and then it's very quick as well, I mean, all the other ways I've used you know, Western Union or you know, going to a shop and then using Western in various other ways. This was actually a very quick way to do and convenient you know, I can do it at the comfort of my home and in a mobile app, and it's very quick and the fees are also quite reasonable as far as I know. I mean, obviously we're not sponsored by Wise or TransferWise but you know, just because I think you're also happy with it. I'm also happy with it and we can just put a link in our description if anyone is interested. We'll put both of our sort of recommendation or referral link in the description so you guys can sort of sign up using a link. But yeah, it is quite a good app, or, like, not just an app. It's a company that we both like and recommend.

Amit Sarkar: 00:19:54

Definitely. And I think you're right I mean, this is my assumption because I see that the payments happen instantaneously. And cross border payments across two different bank accounts can't happen instantaneously, or else I have not seen it or they have to happen between the same banks, but different. So like HSBC, UK and HSBC, India, maybe then you can have instant transactions. But if you don't have the same banks, how do you have instant transactions? So there has to be a mechanism where they are maybe monitoring the exchange rate and then deciding okay, this is the exchange rate at which will transact and will pay the certain fees and will charge the customer this much. So, if say I want to transfer 200 pounds, I'll be charged about one, one pound, one and a half pounds. So that's, I mean it's not a lot but if you convert that to Indian rupee that still a big amount for a very small transaction say 20,000 rupees, so 20,000 rupees of transaction I pay about 100 to 200 rupees in fees. So, that's about what, Not 10% but some 1%

Rinat Malik: 00:21:06

actually less than 1%

Amit Sarkar: 00:21:08

less than 1%. So let's say it's 1%. So I pay about 1% of fees, but because it's convenient because I don't have to open multiple bank accounts. I don't have to maintain different accounts. I don't have to open a new account in UK or new account in India. It makes life so easy. And I think that convenience is what gives this peer to peer payments, such importance. So a lot of companies now. So like in India, you if you have Google Pay, and someone else has Google Pay, you can transfer money using Google Pay to someone else's account just using their wallet. And the same thing is with Apple Pay. So if you I think in US you do that for Google Pay. You can't do it in UK but you can do it in India. So that's how they're making transactions and lives easier for everyone. Because most of the people in India are having an Android phone and it's very cheap to have an Android phone. Most of the people now in the villages they have smartphones. Smartphones have become very cheap. And it's a perfect way to manage payments, even though if you have different bank accounts. So maintaining all the different account numbers, it becomes such a hassle and for a population like India, it's a huge thing. So if you have such a convenient way to make a payment, then it just makes life easier and there are different other things in India like UPI and Paytm and other things. But I think I was just I just wanted to focus on this aspect of payments, especially in UK and US. Now, another thing to note about these peer to peer payments is that how secure is it?

Amit Sarkar: 00:22:35

So it's like an end to end encryption. So if you know the person's handle, or if you know the person's mobile number and email address, and you're 100% sure that that's the right thing. Then you should be able to transact without any issues. I mean, you can still transact, but then there are cases of fraud, like you accidentally, Miss type the number and then it goes to someone else. And if someone else is not, like honest, that they can collect the money. So that's one way to do it. The other ways like I send you a scam link. So you'll know my mobile number, but that mobile number has now been stolen. And someone sends me a link to transfer some money using that mobile number and I can trust that link because I have stored it as Someone I didn't know it stolen. And in that time, I've clicked on the link I made a payment. So that's how you get scammed. So there are different ways you can get into all this. So you have to be very, very careful as to whom you're making payments, even though you it's just a mobile number. It's just an email address that we 100% Sure and confirmed multiple times that it's the same number and email-address. Once you've confirmed and saved it, then every time you make a payment, it's easy. So yeah, so I think these are some of the things that you need to make sure that it's safe. Otherwise, of it makes life so easy. It's very fast. So what else do you want?

Rinat Malik: 00:24:03

Yeah, absolutely. And as you were saying, like, your international transaction happens instantaneously. That doesn't actually surprise me if you think about it, because nowadays everything is happening inside the computer. There is no physical transfer happening. Even if it's different banks and if it's going through different not just banks, different financial organisations have maybe four or five, but they could all be they could all have automated, they're part of the process, you know, and, you know, linked or integrated with each other through API's or any other method. So, as a result, everyone can do their part quite in an automated way, electronically, you know, online, and that way, it would be instantaneous, because it would just, you know, even if there are five steps or five financial organisations doing different approvals, they could all do it straightaway. And let me tell you, this is not the case in all other countries. I mean, I think with India, there is better integration. But when I send money to Bangladesh, it's actually it actually takes one or two days. Sometimes it's the same day which really impressed me. I was like, Oh, wow, within like six hours or eight hours it's gone through, but a lot of the times it's at least 24 hours and if there is any part of the day is the weekend, you know in UK the weekend is different than the weekend in Bangladesh. So if any of those days falls in any of the weekends, then obviously that's like good 48 hours. So that integration isn't available in all the countries I imagine around the world as well. But no, absolutely. It is a very good piece of technology that is really helpful to a lot of users, whether you're doing inter country transaction or within the same bank, whatever it is, it is sort of making because if I know I had accounts in Canada, and they use email addresses to sort of transfer money nowadays, they don't even use the usual way of account number and branch number they just, you know completely like forgotten about it. That's like, like sending fax kind of old technology.

Rinat Malik: 00:26:24

It's just always send money. Give me your email address. That's just the norm over there. And in UK I think mobile number is also a way to pay someone with a UK bank account. So yeah, lives are becoming easier if you know if payments or transaction is easier, that enables a lot of businesses small businesses can flourish. And, you know, a lot of the times cash flow is a big problem. For small businesses. But the more instantaneous all of these things happen, the better it is for small businesses and that also helps the economy of the country. Because, as we all know, small businesses are the backbone of any country's economy. So yeah, I mean, there are a lot of big massive change reaction benefits of these kinds of technologies that we don't usually think about but they are quite powerful in these ways. As with any as, as with any new technology, as you mentioned, there is always the need for being secure and cautious. There are you know, whenever there is new technology, the newer ways to manipulate it and you know, scam the consumers in that way. That's why we want to, you know, make aware, make you guys aware audiences to how to sort of navigate within these new technologies, and hopefully you guys had some sort of bit more light on this topic. So you guys can navigate better when using it.

Amit Sarkar: 00:28:03

Definitely. And I think I mean, it's making life easy, convenient, especially in this age where technology is now. present everywhere. And I think that's the future. In the future, you'll just have maybe a phone number and then you'll have an account with it. It doesn't matter what the account number is, and you don't even bother about it. And I think one of the reasons India has such a better integration for WISE is because of the high volume transactions because of this population of the country and the population of the X, the people outside India who are actually transferring money to back to India, which is called remittance, then that transaction volume is quite high. So that's why there is a more demand for transferring UK pounds to Indian rupee or US dollars to Indian rupee or Canadian dollars to Indian rupee.

Amit Sarkar: 00:28:59

So, because of the just a high volume of transactions, and I think that's what drives payment and one of the things that you said, which I 100% agree is these things enable businesses to thrive and flourish. Because you remove all the hassle of paperwork, opening accounts this that you can accept payment instantaneously so you can provide better services. You can grow your business and everyone is happy because it's so convenient for everyone. I'm not looking for cash. I can just transfer money using my mobile phone. In the UK we have contactless payments, and that contactless payment is made life so much easier. I don't even carry my wallet anymore. I can use the contactless card from my mobile phone to tap into and use the transport network. So I must train they're all accepted. Within London of course outside London, it's different. So within London, I can use the transport network. I can then pay at a coffee shop. I can go to a restaurant and then pay the bill there. If I get a blood test done and I want to pay, I can use that money, I can use my card. Then if I want to transfer so suppose I have a loyalty card. So the loyalty cards are also there as a QR code in in my Google account Wallet. So I can then scan the QR code so I don't need to care. So if I have like loyalty cards from multiple sources, they're all in one single account. So I don't even need those cards anymore. So there are just so many ways your lives are becoming so easier, because now you have a digital wallet. Maybe I think we should talk about digital wallet in our next talk.

Rinat Malik: 00:30:34

Yes, absolutely. That's another fascinating topic and I'm sure our audience will be quite interested to know about how that side of technology works. But no, I mean, absolutely will let's decide to talk about that in our future topics. But yeah, the peer to peer payment system that is also hopefully audience have enjoyed this conversation. We looked at both the technical side but also the societal sort of implications of how it affects the consumers and how to sort of be cautious of potential scams and be aware of how the technology works and how to be sort of how to navigate around it. So hopefully you guys have enjoyed I really have learned a lot. Thank you Amit for going through it all. And hope you guys tune in again next week, in our next episode and yeah, until then. See you next time.

Amit Sarkar: 00:31:35

See you all next time. Thank you so much. Bye