Risks of Venmo, Zelle, Cash App or PayPal
You have probably used one of these peer-to-peer payment platforms. According to recent reports, more than 75% of adults have used some form of payment apps and that number goes up to 85% for consumers under the age of 29.
We are all busy and these apps are very convenient fitting into our lifestyle. For example, if you go out to dinner with a group of friends, and one of the party goers puts the entire bill on their credit card (wanting points for travel perhaps) and then everyone in the group sends that person their share of the bill through an app. (Who carries cash anymore anyway?!) Simple, easy, convenient and done!
But here’s the catch. A lot of people just leave that money that was transferred to them sitting in the apps. Again, life get busy and quickly the balance in the app is used for “mad money” you can use later. But…that money in the app isn’t as safe and secure as you would hope.
Here’s Why Leaving Money in these Apps are Risky
The Consumer Financial Protection Bureau has issued a warning about leaving billions of dollars inside the payment apps instead of transferring to your bank account because the funds are not insured as they are with your bank. It is not insured the same way as a bank or credit union.
Deposits at the credit union or in your bank account are insured by the National Credit Union Association or the FDIC. If your money is hanging out in these apps, it’s not protected. If the company holding your money goes belly up, you could lose that money.
The Popularity Problem
If we are being completely honest, no one is going to stop using these apps. In 2024, the amount of money transferred globally on these payment platforms hit $1.7 trillion. These apps have made moving money ridiculously easy – no checks (what are those?), no cash (who carries cash?) – just a few taps on your phone and the money is transferred. So, the takeaway isn’t “stop using them”. Definitely not! Instead, the message is “don’t let them hold your money.” Transfer your balance out quickly in order to get it to a more secure location…for example…Evergreen Park Schools Federal Credit Union.
Safety Guidelines You Should Implement
Besides keeping your balance at zero, there are other ways to protect yourself when using Platform 2 Platform Apps.
Never share your login information. Be sure you are creating secure usernames and passwords. Don’t use something obvious such as “password123”. Consider using a password manager and creating passwords with at least 15-20 characters with a mixture of letters, numbers and symbols. And last but certainly not least, turn on multi-factor authentication (yes, it can be annoying but it is so worth it).
Understand the rules of payment app transfers. This part is extremely important. There is usually no fraud protection with these payment apps. Sending money through them is basically like handing over cash. If you accidentally send money to the wrong person, or worse, a scammer, you cannot cancel the transfer or have any recourse to get your money back. It’s gone!
Pay attention to what the apps are doing with your money. Do you leave money in the app? Who benefits from that? The answer is: the app company. The app company may invest your funds, pocketing the returns without paying you a dime of interest. And what’s worse is that some user agreements are intentionally vague about where the money is held, whether it is insured, and what happens if the company or partner bank fails. That’s not a risk you should be taking with your money.
Scammers and the Pitfalls of Peer-To-Peer Platforms.
Scammers love these apps because money moves instantly and transfers usually can’t be reversed. Here are some common traps:
“Accidental” Payment Scam. A stranger sends you money by “mistake” and asks you to refund it. In reality, they used a stolen card, and once the fraud is uncovered, the app takes the money back leaving you on the hook.
Fake Purchases. Buying something through a marketplace? Scammers may insist on being paid through a Peer-to-Peer app. Unlike PayPal’s goods-and-services option, Venmo and Zelle do not offer buyer protection.
Phishing Attempts. Fraudsters send fake emails or texts noting “there is a problem with your account.” Clicking the link can compromise your login information.
Laws/Protections. Now that you have all of the bad news, here’s some good news. Regulators are well aware of the risks. Some states are considering laws that would require app providers to hold reserves and prove they can meet their obligations if something goes wrong. There’s no nationwide safety net in place yet. That means it’s up to you to protect yourself.
Best advice to remember when using these apps:
- Don’t store money in them.
- Transfer it out.
- Secure your login.
- Only send funds to people you actually know.
- Great for splitting dinner, paying the babysitter or reimbursing a friend.
- Not a place to stash your cash.
The Bottom Line.
Peer-to-Peer payment platforms are here to stay and they’ve made our lives easier. Don’t allow the convenience blind you to their risks. Remember they don’t offer the same protections as credit unions/banks if you are scammed.
