Friends and Family Money: P2P Transfers and Financially Fragile Consumers

This paper examines the impact of real-time payments on financially fragile individuals in the United States. We do so by using detailed transaction data that allows us to carefully identify income, expenditures and liquid assets holdings. We then investigate how digital payments technology that allows for instant transfer of funds between people at low or no cost, affects person-to-person transfers and consumer outcomes after negative income shocks. We find that instant access to funds reduces uncertainty in cash flow timing, enabling better alignment of income and expenditures, which in turn reduces the likelihood of negative consequences such as overdraft/late payment fees. We confirm our results using a novel instrument for access to digital payments technology. These findings contribute to the active policy debate on real-time payments, highlighting their potential to enhance financial stability for vulnerable individuals.