![]() The CFPB also found that user agreements for the payment apps often contain little to no information about whether a user's money can be insured in a given app, or whether their money may be used for other investments or purposes within the company while it is held in the app. "As tech companies expand into banking and payments, the CFPB is sharpening its focus on those that sidestep the safeguards that local banks and credit unions have long adhered to," CFPB Director Rohit Chopra said in a statement. Deposit insurance has been a popular topic across the finance industry this year with the collapse of three regional banks sparking discussion and questions about bank deposits that are insured by the federal government. Without deposit insurance, if money is no longer accessible because of something like a bankruptcy filing, that money could be gone forever with little to no chance for the user to be reimbursed, the CFPB said. ![]() In contrast, Venmo is primarily focused on P2P payments and does not offer as many additional financial services. Given the massive amounts of money passing through the apps, the CFPB said the lack of federal regulation and oversight on the apps comparable to what banks have to face is concerning. Cash App is a more comprehensive financial platform that offers a wide range of services in addition to peer-to-peer (P2P) payments, such as the ability to buy and sell stocks, apply for a loan, and manage a debit card. That's expected to nearly double to $1.6 trillion by 2027. The apps saw a collective $893 billion in transactions last year, per the CFPB's report. Use an app like Apple Reminders or Google Calendar to set up recurring nudges for yourself.Account icon An icon in the shape of a person's head and shoulders. Try to check your balance at least once per month to not miss any outstanding funds from that group dinner or grocery run. Regularly transfer your existing balance from the payment app holding fund into your FDIC-insured linked funding account. Even if your money is stored safely in an external, FDIC-backed bank during a payment app collapse, you could still experience significant delays in accessing your funds. However, pass-through coverage explicitly doesn’t protect you against PayPal or another app failing. If you follow the insurance criteria, this can offer an additional layer of protection for app users. ![]() Also check for details on whether your money may be insured at a bank or credit union, as well as what happens in the case of the payment app’s collapse or bankruptcy.Ĭonsider the offered "pass-through" insuranceĬertain apps offer specific pass-through insurance, which protects you against the collapse of the bank or credit union where the company holds your funds. You may be surprised to learn that they earn interest on your money without passing any of it on to you, like a normal bank normally does. Check if the payment app company keeps your money in a bank or credit union account or invests your money in loans and bonds. The user agreement, as murky as it can be, should explain the app's basic business model, investment strategy and risk profile. The CFPB offers several tips for payment app users to protect their funds from deposit risk: Story continues Next steps for payment app users However, similar protection would not be guaranteed to customers that store money on nonbank payment apps, as we saw from the near-total wipeout of FTX users after the giant crypto exchange collapsed last year. ![]() These banks experienced catastrophic runs, but their insured depositors with account balances of up to $250,000 could have confidence their money was safe. Funds in PayPal, Venmo, CashApp lack insuranceĮarlier this year, the collapses of Silicon Valley, Signature and First Republic Banks highlighted the importance of federal deposit insurance offered through the FDIC or NCUA. A recent report from the Consumer Financial Protection Bureau (CFPB) casts a spotlight on deposit risks among popular mobile payment apps, while explaining how consumers can hedge their risk of a collapse. However, recent bank and crypto exchange failures highlight the risk of keeping your funds in accounts that exceed or simply lack FDIC insurance coverage. The pandemic further accelerated this ongoing shift toward a cashless future. Convenience, transaction speed, and flexibility across multiple smartphone types offer consumers an easier way to pay for services and split bills with friends and family. Mobile payment apps like PayPal, Venmo and Cash App have exploded in popularity in the last several years. A Consumer Financial Protection Bureau issue says PayPal and other popular payment apps often sidestep key government protections for your funds. ![]()
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