About Third-Party Money Transfer Platforms

Previously, we introduced direct bank-to-bank transfer methods such as wire transfers, ACH, and writing checks. Most of those methods require you to share your own bank account information or know the other person’s bank account details. Bank account numbers are long and hard to remember, and there is always some risk of theft or misuse. That is why third-party transfer platforms became popular. Once you register an account, you can often send money using just an email address or phone number, which is very convenient. Of course, these platforms also come with other features, such as online payments.

The most common third-party platforms with money transfer functions include PayPal, Venmo, and Google Pay. You simply link a checking account to these platforms, and when you send money, the funds can be pulled automatically from your checking account. In addition, third-party platforms may also let you fund transfers with a debit card or credit card, usually for a percentage-based fee. This can be useful for people who do not have cash on hand at the moment. With a direct bank transfer, you generally need to have money in the account first; otherwise, you may overdraft and incur a high fee. Compared with banks, third-party platforms can often make funds available immediately. You can also use the balance in these platforms for online purchases or to continue transferring money, which is quite efficient.

PayPal

PayPal is a very commonly used payment platform. One of its most important features is the ability to transfer money directly between PayPal accounts. You only need the recipient’s email address or phone number. You can do this in the send money section, and the transfer record will show who sent the money. Funds arrive in the recipient’s PayPal account immediately, which is very convenient. If the recipient does not have a PayPal account, PayPal will send them an email, and they will need to register for a PayPal account before they can receive the money.

Transfers can arrive immediately, which is very convenient.

Two Ways to Send Money

For person-to-person transfers using the friends and familiy option, if you choose your checking account as the payment source, there is no fee. You can also choose to pay with a credit card, but there is a 3.2% fee. For example, sending $100 would incur a $3.2 fee. For small transfers between people you know, this is generally the recommended approach.

Besides the friends and familiy option, PayPal also offers a pay to merchant payment option. Note that this type of transfer is used to pay merchants or for buying and selling items between individuals. The sender does not pay a fee, and there is no fee for using a credit card to make the payment either.

However, the recipient does pay a fee, roughly around 3%. If you send $150, the other party will receive only $145.35.

If you are buying something from a friend or someone online and need to make a payment, be sure to confirm which sending method will be used and how much the recipient will ultimately receive. Transfers made this way are protected by PayPal, meaning that if you are not satisfied with the goods or services related to the payment, you can file a dispute with PayPal and try to get your money back. My suggestion here is that if you do not fully trust the seller, using pay to merchant is safer.

Withdrawing to a Bank

After receiving money, the recipient can choose among three ways to access the funds:

  • instant transfer: costs 1.5%, with a minimum of $0.25 and a maximum of $15, and can transfer to a bank account immediately
  • stander transfer: free, but it takes 1-3 days to appear in your bank account
  • check: costs $1.5 and is mailed to the address you provide; once you receive the check, you can deposit it into a bank or cash it.

Of course, if you already use PayPal regularly to check out, you can simply use the money directly. Funds sent to you are available for payment right away.

Transfer Limits

After your account is verified, PayPal does not have a transfer limit. However, PayPal does impose limits on transfers to bank accounts. For unverified accounts, the limit is $10,000. After verification:

  • Instant Transfer limit: Up to $5,000 per transaction, $5,000 per day and $5,000 per week in total. Up to $15,000 per month
  • standard transfer limit: Up to $25,000 per transaction

About 1099k

Anyone even somewhat familiar with PayPal has probably heard of the infamous 1099k. The rules for issuing a 1099k vary by state, so this requires special attention. The current rules are as follows

  • Vermont, Massachusetts, Virginia, and Maryland: $600 USD in gross payment volume from sales of goods or services in a single calendar year regardless of the number of transactions. In other words, only the annual total matters once it reaches $600, and only goods or service payments count.
  • Illinois: $1,000 USD in gross payment volume from sales of goods or services in a single calendar year with at least 3 payment processed. $1,000 and more than 3 transactions, and only goods or service payments count.
  • Other states: issued when above $20,000 and more than 200 transactions, and only goods or service payments count.

Generally speaking, good and service refers to selling items on eBay or receiving money through PayPal goods payments. Money sent between friends usually goes through family and friend, which is not counted.

Venmo

Venmo is very similar to PayPal (it is actually part of PayPal), and it can also be used for transfers. Likewise, you only need an email address or phone number to send money, and Venmo also adds the option of using a facebook account. In addition, Venmo offers some social features and things like group collections. Compared with PayPal, it is probably a bit trendier. Venmo can only send money to U.S. accounts and cannot be used for international transfers.

The sending limit for unverified personal accounts is $299.99. Once Venmo verifies your identity, the limit is $ 4,999.99 every 7 days. In general, linking a bank account is enough to complete verification.

Apple Pay

If you use an iPhone, you can also send money directly with Apple Pay. The steps are below:

The sending limit is $10,000 every 7 days, which should be more than enough for most people.

Google Pay

The Google Pay APP can also send money. The steps are below:

The limit is a bit lower: verified accounts can send $5,000 per week, while unverified accounts are limited to $500 per week.

Summary

Compared with direct bank-to-bank transfers, the biggest advantage of third-party money transfer platforms is that you do not need to disclose detailed bank account information or as much personal information. In terms of user experience, third-party apps are also more friendly and smoother than many outdated banking apps. However, for especially large transfers, I still recommend using one of the direct bank transfer methods, because third-party platforms may hold your funds for a period of time due to risk control.

For introductions to other transfer methods, see: