4 risks to know about when using payment apps

In an age where few people are carrying around cash, peer-to-peer (P2P) payment apps like PayPal, Venmo, Cash App and Zelle make it easy to send and receive money. People are turning to these apps now more than ever before to repay a friend for a dinner bill they covered, or to contribute their portion to the family phone plan.

This level of convenience has led these apps to soar in popularity — “almost three-quarters of U.S. consumers used payment accounts such as PayPal, Venmo and Cash App in 2023, according to the Atlanta Federal Reserve — up from 68% in 2022,” said The Washington Post. People are not just using the apps for one-off expenses either, as the Consumer Financial Protection Bureau “estimated that payment volume on these apps quadrupled between 2018 and 2022, with usage especially concentrated among younger Americans.”

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That may not seem like such an issue if you sent the money to a good friend, but these apps are also susceptible to fraud. “About a quarter of bank customers in an October survey by J.D. Power said they or a close relative had experienced fraud via a peer-to-peer service,” said the Times. Examples of fraud that people experience on payment apps include when a “scammer masquerading as a legitimate business asks for payment of a product or service,” or a scammer “‘accidentally’ transfers money to you and asks you to return it,” said Experian.

If you encounter an issue using a payment app, whether due to fat-fingering a number or getting caught up in fraud, there is also no guarantee that you will have your problem easily resolved. It is estimated that “about 77% of people who reached out to a payment app to resolve an issue have faced at least one problem during the process, and 1 in 5 reported not being able to resolve their most recent issue,” said the Post, citing Consumer Reports.

This is because “many of the legal rights you have when using a credit card do not exist with P2P payments,” said Consumer Reports. Instead, “users are mostly on their own in those situations because payment apps fall into a regulatory ‘gray area,'” said the Times. “It’s kind of a user-beware situation,” Delicia Hand, the director of financial fairness with Consumer Reports, said to the Times.

Further, if you happen to need access to the funds you have stored on the app, there is no guarantee you will get that money quickly. “It may take days to complete a transfer to your bank account,” and even if an app offers an instant transfer, “it could come with an extra fee,” said Experian. If you have a lot of money tied up in an app, it is possible this “could cause a late fee or missed payment, which can have consequences in terms of your financial health.”

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