Apple’s new peer-to-peer payment service: Any rewards possibilities?

Apple has announced it’s getting into the P2P payments game later this fall with a new service that competes with Venmo, Square Cash and PayPal. The new P2P payments feature will be built into Apple Pay and will allow users to send friends and family money through iMessage (see the demo video).

You can use a debit card or credit card to seed the funds — which might lead rewards-maximizers to ask: “How can I use this to my advantage?”

So let’s talk about the credit card rewards implications.

How the new service will work

Apple’s new P2P payments platform will roll out with iOS 11 and will be built into Apple Pay. Users can digitally send others (as long as they are iOS users) money via iMessages from a debit or credit card. Debit-card transfers will be free, while credit-card transfers will incur a 3 percent fee (charged to the sender), Recode has confirmed, which is on par with the fees charged by Venmo and other services.

The funds transferred will live on a digital Apple Pay debit card called Apple Pay Cash. And that “card” can be used to send money to others, make deposits into a bank account or to pay anywhere Apple Pay is accepted (online and in stores). Many major retailers are enabled for NFC contactless payments and therefore accept Apple Pay. That makes your Apple balance funds slightly more flexible than your balance with Venmo, which is not accepted for payments in stores. However, Apple’s P2P service is available only to iOS users, while Venmo is compatible most smartphone operating systems.

Any rewards potential?

Apple Pay’s P2P transfer service allows you to pay anyone with a credit card. So does that mean another avenue for earning rewards? After all, if you earn 1 point per dollar on a card, transferring $500 to a friend could earn you 500 points. If that friend then pays you back (in cash, check or transferring the money back to you), you’re earning points for free.

Not so fast.

A major detail needs to be confirmed — how this transferred money will be coded by your credit card. First, there’s no confirmation whether transfers from a credit card will be coded as a purchase or cash advance. If it’s the latter, you don’t want to be using a credit card to make transfers, period. Cash advances start accruing interest immediately and often incur a fee. Second, credit cards generally have rules against earning rewards on “cash equivalents.” Usually, that refers to buying gift cards with a credit card, or using your credit card to load a prepaid card. So, it’s a logical conclusion that issuers would frown upon using your card to fund the digital debit card that underpins Apple Pay’s peer-to-peer transfers.

If history is any indication, however, it’s unlikley transfers from a credit card would be coded as a cash advance — and they probably won’t run afoul of credit card cash-equivalents rules either. In fact, Venmo transfers code as purchases, rather than cash advances, AND there’s plenty of evidence that people have used Venmo transfers to earn rewards.

Still, that doesn’t mean you should start concocting complex point-farming schemes for Apple’s new service, because:

  • There will probably be weekly limits: Venmo has a $3,000 weekly limit for sending money. Apple may do the same.
  • Sketchy behavior could get you shut down: If you’re constantly sending money to a friend from your credit card, only to have that friend send the money right back, that looks fishy. Venmo, Square Cash and others have been known to shut down accounts or freeze funds if it looks like you’re not using them for their intended purpose.
  • There’s a 3 percent fee for using a credit card: Every time you transfer money to a friend via a credit card, you’ll pay 3 percent of the amount transferred. So, unless you’re earning more than 3 percent cash back with your credit card (unlikely), you’re losing money.


There’s just one way Apple’s new peer-payment service might still help your rewards strategy …

… and that’s in meeting minimum spend for a sign-up bonus.

Credit cards often offer huge bonuses if you spend a certain amount of money in the months after approval. In fact, there are some pretty generous offers right now:


If you’re having trouble meeting minimum spend on your regular spending, paying a 3 percent fee for part of it may be worthwhile. For example, if you have a week left to earn the bonus and have $1,000 in spending left to go, you might ask a trusted friend if you can transfer $1,000 to him or her. You’ll pay $30 for the privilege, but getting 50,000 bonus points may be worth it.

Consider this a tactic to use rarely. You don’t want your account shut down, and, besides, it’s best to earn a sign-up bonus on your regular spending without paying a fee.

 
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