Paying By Phone? What To Watch Out For

Your son calls from college, short on cash, and needs $50 -- fast. Or when you're out to dinner with buddies, one pal puts the tab on his card and the rest of you agree to reimburse him later.

What's the easiest way to settle up? With a quick email or a few taps on your cellphone, you can transfer the money, and your recipient will get it within a day or so -- sometimes even in minutes.

So goes the brave new world of person-to-person mobile payments. According to a 2013 Federal Reserve report, about one in four smartphone owners has made a mobile payment in the past 12 months. Of those, 30% sent money directly to another person, up from 21% in 2011, while the percentage receiving funds (15%) nearly doubled.

And a new Consumer Action survey suggests that people who pay this way like it: More than three-quarters of users say they'd recommend the process.

As the technology catches on, though, a few hitches and concerns are becoming apparent. Got questions? Below, some answers.

What are your options?

You have two basic choices for making a mobile payment to another person: You can send cash through your bank -- most major institutions let you transfer money via an in-house system or a service partner such as Popmoney. Or you can use a third-party online provider, such as Dwolla, Google Wallet, or PayPal.

To pay through your bank, you need to sign up for the money-transfer option online or via its mobile app. Then you can just key in your recipient's cell number or email address and how much you want to send, and the amount will be debited from your account.

The person you're paying receives an email or text alert that you've sent the money. He or she signs up to receive the payment (basically just providing a bank account where the funds can be wired), and the transfer is made -- often within minutes if you're customers at the same institution, or typically within a couple of days if you're not.

Paying through an online provider works much the same way. You have to sign up if you don't already have an account -- and usually so does your recipient. The transfer process works the same way, needing only an email address or cell number, but in addition to funding the payment from your bank account, you can use a credit or debit card or a prefunded account with the provider.

Do you pay to pay?

Transfer the money from your bank account or a prefunded third-party account, and the transaction is usually free. Pay by credit card, and the transfer can get expensive, says Anisha Sekar, vice president of credit and debit products at NerdWallet. An exception: Amazon WebPay, which doesn't charge for using plastic.

Usually the person making the payment is the one charged, but not always: PayPal, for instance, lets the sender choose who pays for credit card transactions. A sure way to tick off a friend to whom you owe money? Make him pick up the tab for reimbursement, says Sekar.

Which service is best?

Banks are usually the cheapest option, but come with no frills. If you want to pay by credit card or also transfer money to pay merchants, you'll need to sign up with a third-party provider that offers these options.

Other cool or silly (depending on your point of view) add-ons: Dwolla allows you to pay someone via social media accounts such as Facebook and Twitter, while you can transfer money via PayPal by bumping smartphones with another user (you'll just need to download the free Bump Pay app first).

Is it really safe?

"There are no specific legal protections for person-to-person payments," says David Kolata of the consumer advocacy group Citizens Utility Board.

Still, the same rules apply as to any other credit card or bank transactions -- if, say, your smartphone is stolen or your account is hacked, your liability is generally limited to $50 for credit cards and to $500 for bank and debit card payments if you report the problem in 60 days.

With nonbank services, privacy may be a greater concern, since your personal information is exposed to more middlemen. No major problems have been reported so far, says John Breyault of the Consumers League. For now, though, he adds, "many people may feel more secure using their own bank than a third-party option."