The Risk Of Storing Money In Peer To Peer Payment Apps

At first it used to be just some red flags, certain users warning others about the risk of losing money online, or apps suggesting people to be careful when sharing financial information with new clients, etc. Now ever since the Consumer Financial Protection Bureau have raised concerns that the funds may be at risk if the app’s parent company runs into trouble, users are left wondering, “Should we really continue to carry out transactions through these peer to peer payment apps?” 

Millions of Americans use payment apps now. With big-shot retailers like Walmart guiding users to pay through Venmo, Cash App or PayPal, it’s highly likely that many will install, if they have not done so already, and start to use the applications for everyday transactions. 

However, that is where the buyers are wrong! Funds in checking or savings accounts are federally insured. If there are any unauthorized transactions or loss of money, the bank can be held responsible. However, peer to peer payment apps are not automatically protected. As more and more people decide to go cashless with these apps, scammers and fraudulent parties have more chances of stripping users of their funds if they are not careful enough. 

Exactly When Is Your Money At Risk?

Let’s take Cash App, for example. It has become a famous platform for quick transactions. Ironically, Cash App is being used for quite interesting money transfers such as people earning money through selling feet pics online on sites like or FeetFinder. Let’s assume that such a user receives funds from a client. Then the money will stay in the app unless the user sends the funds to a linked bank account or a credit union. 

In contrast, some apps also let users keep the money just like they would in a traditional bank account. Moreover, you can check the balance online, review transactions, and use the funds in the app for other payments. This gives them a false impression that their money is in safe hands. However, money in the app is not held in an account such as with FDIC member banks or NCUA member credit unions. Simply put, the funds are not FDIC insured. 

Now if the parent company goes out of business or fails, you run the risk of losing the money altogether. There is also no clause in Terms of Use that allows clients to claim the funds. It will be gone for good! 

Different apps are set in different ways. Some companies often invest user’s funds and earn interest while sharing no profit with you. The funny part is that many do not know that the application agreement often leaves out these terms or strategically stays silent about how your money will be used. 

So there is only one of two things that will happen to your money if a nonbank payment app fails while your funds are there: you either lose it completely or it gets tied up in a long bankruptcy process. 

So The Question Is: How To Protect Yourself?

As the concern about the safety of funds are on the rise, so is the awareness around how to protect yourself against scammers and theft when using these payment apps. You can yield a simple AI search on platforms like ChatGPT and it would give you a detailed guideline on what you can do to enjoy the speed and convenience of the payment apps while steering clear of frauds and scams. 

  1. 1.  Cash App or Venmo does not let you claim the transfer or get a refund once the money is through. Therefore, it is extremely important to verify the information before sending money to anyone, especially if you are dealing with someone you don’t personally know. It is also ideal to ask for the recipient’s username, email ID and phone number in case you have to contact them again. 
  2. 2.  Watch out for unexpected payments too. If you get funds anonymously, be cautious. Scammers often use stolen credit cards or fraudulent accounts for such transactions. They will then reach out to you and request you to send the money back to another account (their own). Later on when the stolen credit card transaction is reported and traced, your account will be involved putting you and your funds on the line. If given the choice, decline to receive such funds and contact the app’s customer support service immediately so they can handle the matter. 
  3. 3.  Keep a check on your account activity at least twice a week. This involved regularly checking transaction history so you can identify any fraud timely. The sooner that you begin to take action, the better are the chances that you will get your money back. Moreover, if you have stopped using a particular app altogether, it is better to delete the account so you don’t run the risk of getting hacked. 
  4. 4.  Last but not the least, never share your login information with anyone. Make it a point to never email someone or text them with sensitive information about your bank account or app login details. These messages can easily be retrieved by hackers who can then carry out unauthorized transactions. If you feel that the security of your account has been breached, contact the app’s customer service directly. You can also add multi-factor authentication and facial recognition as “extra precautionary” steps to access your account. 

Peer to peer payment apps are not as safe as bank accounts. There’s simply no way around it. Although it is a bitter truth we all need to get used to, there are tips to keep in mind that will help you steer clear of any problem. The world is moving at a fast pace so it is natural that we want our monetary transactions to be completed in a blink of an eye too. There’s no harm as long as you impose other measures to safeguard your funds online. 

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