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United States: The Hidden Costs of Payment Apps

Categories : Cash generates security, Cash protects privacy and anonymity
July 1, 2021
Tags : Payment apps, payment fraud, Privacy and anonymity, US
A new report by U.S. Public Interest Research Group, finds that complaints submitted to the Consumer Financial Protection Bureau about payment apps surged during the pandemic.
Guillaume Lepecq

Chair, CashEssentials

This post is also available in: Spanish

Consumer complaints about payment apps such as PayPal, Venmo, and Square have surged during the pandemic year. There were 970 digital wallet complaints in April — almost double the previous peak from July 2020. PIRG Education Fund analysed this growing problem in the report Virtual Wallets, Real Complaints, a new analysis of the Consumer Financial Protection Bureau’s (CFPB’s) Consumer Complaint Database.

Scammers Have an Open Door to Payment Apps

“People use peer-to-peer apps for convenience but there’s nothing more inconvenient than having your money inaccessible — or even worse, going to the wrong person,” said Ed Mierzwinski, PIRG Education Fund’s senior director of federal consumer programs. “We’re seeing as more people turn to payment apps, more people are getting burned by related problems, including scams and fraud. And, more people are experiencing problems bad enough that they’ll go to a government website to register their complaints. It’s time for the CFPB to force the payment apps to provide better customer service.”

The three most commonly complained-about issues in the PIRG Education Fund report are problems managing, opening, or closing accounts, fraud or scams, and problems with transactions (including unauthorised transactions).

A Privacy Nightmare

In May, after The New York Times reported President Joe Biden had used Venmo to send his grandchildren money, Buzzfeed reporters located his account. They accessed his list of contacts, including his children and other family members.

The report found that the top 10 most-complained-about companies accounted for 90% of all 9,277 digital wallet complaints, led by PayPal (which owns the Venmo app), Square (which owns the Ca$h App), and Coinbase, a cryptocurrency trading platform. Americans also complained a lot about several big banks, including PNC Bank, Chase, and Bank of America (some of the co-owners of Early Warning Systems, the parent of Zelle, a leading P2P app).

Apps Offer Fewer Rights and More Threats

When you use a peer-to-peer payment (P2P) app, you have fewer rights by law and more threats from scammers. The report recommends:

“Don’t use these apps to pay people you don’t know and, even if it’s your best friend or your mom, confirm you’re set up correctly and using the right user name,” said Mierzwinski. “Consumers don’t realise these online transfer payments are instantaneous and treated like cash, so when fraud strikes, you’re likely without recourse.”

The report recommends that policymakers strengthen consumer protections on payment apps. Consumers should be protected when they are defrauded into sending money, even when they “initiated the payment.” App providers should be required to investigate errors and fraud even when the consumer makes a mistake or sends the money. This is an existing duty not being enforced.

This post is also available in: Spanish