Peer-to-Peer Pressure: Interview with a Bookkeeper

Peer-to-Peer Pressure: Interview with a Bookkeeper

Today, two friends with smartphones can share a meal and split the check instantly. Venmo, Zelle, and Cash App are peer-to-peer smartphone applications (P2P) that streamline money transfers by linking user credit cards or bank accounts to rapidly move funds between users. As these quick and easy tools continue to gain popularity, more businesses will accept them as a new payment standard, reshaping how we handle our money.

In the legal field, client interest in P2P apps is also rising. While undoubtedly convenient, lawyers must assess their security and suitability for their practice. For example, lawyers should avoid using these processors with trust accounts to prevent potential ethics violations.

To delve deeper into this payment method, I spoke with Sarah Prevost, an accounting specialist and founder of Mintage Labs. She has over 20 years of experience serving attorneys and law firms and has noticed a surge in questions about integrating peer-to-peer payments as a direct response to client demands.

Monica: Hello, Sarah. Thank you for meeting with me. What is your take on peer-to-peer payment processing generally?

Sarah: Well, peer-to-peer is great for splitting shared costs, like lunch with a colleague or gas on a trip. It's handy when places accept only one credit card.

Have you seen peer-to-peer payment used in the legal field?

Yes, sometimes independent contractors—like translators—only accept peer-to-peer payments, so firms must navigate those payments. Also, people who are comfortable with an app for personal use tend to consider it as an option for their business. Many P2P apps offer a special business account to encourage widespread use.

For law firms, though, it's crucial to deposit and retain funds properly. We all know that commingling your operating and trust accounts could run afoul of ethical rules, but it’s also important to keep business and personal funds separate. Some of these apps have one login for both accounts, so be careful which account you use. If an attorney really needs to use this type of processor, be sure to research and select the right app for your office.

Do you have any tips for managing peer-to-peer transactions?

Keep a close eye on the account to track your accounts receivable (what clients owe you and what they paid). Thorough documentation of all transactions may be necessary for a future audit or review of your accounts. Each transfer of funds should have a digital paper trail. Make sure you have an electronic receipt for every transaction to double-check it. For easier reporting, some P2P apps can integrate with your accounting software, but most don’t offer this feature. Review your account regularly to catch any mistakes.

What do you see as the potential risks of making peer-to-peer payments?

Once you send money on these platforms, it's gone. This means that these ultraconvenient apps offer little hope of recovering any money sent because of a fraudulent action or scheme. It is also a useful tool for scammers because they tend to press for a transaction under a deadline, and initiating a transfer is simple and fast on these platforms. Despite oversight by the Federal Trade Commission’s Bureau of Consumer Protection and related state agencies, the sheer volume of collective transactions makes monitoring and recovery efforts nearly impossible.

How can attorneys protect themselves when using peer-to-peer processors?

When executing any P2P transaction—with a client or someone else—always keep your routing number and bank account info hidden. You should also check the recipient's account details thoroughly before sending any money.

Do you think it’s helpful to do a test transfer by sending a small amount first?

Yes, that’s a great idea. This way you can confirm that everything's correct and hopefully avoid a mistake in the larger monetary transaction.

What about privacy concerns? I see some peer-to-peer apps publicize money transfers to all app users. I would worry that the published transaction info could be a breach of confidentiality.

Yes, attorneys should adjust the app’s settings to assure that all transactions are always private.

What other potential pitfalls should attorneys be aware of if they are considering peer-to-peer as a long-term option?

Well, one key question to ask is what data the platform collects, how it’s used, and whether it’s shared with third parties. If you are using a free service, then in exchange for the app you are likely supplying the vendor with your information. So be sure to review the terms of service before conducting any transactions. It's important to understand the rights and responsibilities of both the customer and the app provider.

What measures are in place to protect the privacy of customers' (i.e., you and your clients) personal and financial information?

Attorneys should also be mindful of the app’s record retention policies. Most P2P platforms only keep transaction data for two years, so attorneys will need to download and store that data in their own system periodically.

To reiterate, this platform should be reserved for sporadic reimbursements to staff via their personal accounts. It can be risky if used long-term for all office transactions, like business expenses or client refunds.

Speaking of terms of service, how are disputes over peer-to-peer payments handled? Is it difficult to get them resolved?

It can be. You might have a dispute with the vendor or a third-party merchant like an integrated credit card processor. You need to read the terms of service to know what policies or procedures for dispute resolution are in place.

Any last words of advice for attorneys?

Your business bank account holds your hard-earned money, so it's crucial to protect it. You may be able to take additional steps to safeguard your funds. For instance, some banks offer sweep accounts. These function as a pre-processing holding that releases any funds only after they clear the sweep. It's worth discussing with your bank whether this is an option for you.

It's also wise to establish a clear policy for sending and following up on mailed checks. Fraudsters may steal and exploit old invoices and checks, so it's important to track whether the recipient deposited the funds.

Finally, I really want to emphasize avoiding connecting your trust account to unknown processors. Any financial software transacting out of your trust account should be a legal-specific payment processor. I have seen an increase in fraud cases related to trust accounts, so be extra cautious with any trust account transactions.

I think an important point you touched on is that attorneys need to understand how any trust account-connected processor works, any surcharges that may apply, and what information the software is collecting and sharing. Thank you, Sarah, for all your information and fantastic advice to attorneys.

If a firm decides to incorporate peer-to-peer apps into its practice, effective management of these transactions requires meticulous documentation and regular account review. It is key to have a thorough recipient verification process. Irreversible transactions, susceptibility to scams, and privacy issues are potential risks, which underscore the importance of cautious usage. For long-term use, attorneys should consider the platform’s existing data privacy policies, along with available record retention policies and dispute resolution procedures. Ultimately, attorneys need to understand these systems to better safeguard their practice and their clients' interests before giving in to peer pressure.


Additional Resources:
Accepting Credit Cards
Peer to Peer Payment Apps, ABA GPSolo eReport May 2022
Clients Want to Pay Electronically, OSB Bulletin Feb/Mar 2020
Avoiding Wire Fraud, PracticePro Presentation
When Fraud Strikes, OSB Bulletin July 2023
Getting Paid, OSB Bulletin Nov 2016

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