Money stored in mobile payment apps like Venmo and Cash App may lack federal insurance protection, unlike deposits in federally insured banks.
The Consumer Financial Protection Bureau has warned that funds stored in peer-to-peer apps are not automatically protected, which can put cash at risk if the app's parent company faces financial difficulties.
Apps like Venmo, Cash App, and Apple Cash have become popular for splitting bills, shopping online, and making contactless payments, especially during the pandemic.
The transaction volume on these apps was approximately $893 billion last year and is expected to reach $1.6 trillion by 2027.
Over 75% of adults in the United States have used at least one of these popular payment apps.
Rohit Chopra, the director of the Consumer Financial Protection Bureau, highlighted that although these apps are used as substitutes for traditional bank accounts, they lack the same protections for funds.
While most payment apps are required to hold reserves, the blog post from payments technology specialist Judith Rinearson argues against automatically sweeping balances into bank accounts due to higher fees and slower payments.
Federal deposit insurance generally covers up to $250,000 per depositor in the event of a bank collapse, but payment apps operate differently and may not offer the same level of protection.
Some users treat payment apps like traditional banks, leaving money stored in them for future payments, but this can be risky as funds in the app's "stored value" accounts may not be FDIC-insured.
Some payment apps offer FDIC insurance protection through partner banks, but users may need to take additional steps or sign up for specific services to activate the coverage.