New report: the hidden costs of peer-to-peer payment apps

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Complaints about ‘digital wallets’ surge on government watchdog website

CALPIRG Education Fund

SACRAMENTO– Consumer complaints about peer-to-peer (P2P) payment apps such as PayPal, Venmo and Square have surged during the pandemic year. In April, there were 970 digital wallet complaints — almost double the previous high from July 2020. CALPIRG Education Fund analyzed this growing problem for Virtual Wallets, Real Complaints, a new analysis of the Consumer Financial Protection Bureau’s (CFPB’s) Consumer Complaint Database.

“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 Jenn Engstrom, state director of CALPIRG Education Fund. “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.”

Tiara Nourishad, a third year student at UC San Diego, tried to use the Venmo app to pay back $100 to a friend for a few rideshares, but she typed in one letter wrong in her friend’s username and sent the money to an unknown person.  

“I asked the person I accidentally venmo’d to send it back to me but they didn’t respond. I reached out to Venmo but never heard back. I still had to pay my friend back, so I was just out $100,” said Nourishad.

Nourishad’s story is very common, especially in California, where consumers have sent the most digital wallet complaints of any state to the CFPB.

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

Priscilla Wagner, originally from Calabasas, Calif., used Venmo to receive money from her roommate for rent, but when she tried to transfer the money to her bank account it didn’t transfer. After three to five business days she reached out to Venmo, who said it could take 10-15 business days to transfer. 

“After 15 days, I eventually got Venmo and my bank on a three way phone call and Venmo just said they made the transfer and the bank said it’s not there,” said Wagner. “It was never resolved and I just accepted that I’ll never see that money. I stopped using Venmo after that.” 

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

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

  • Using a P2P app is like spending cash. Only use it with friends and other people you both know and trust.
  • If possible, keep one separate bank account to link to P2P accounts. Do not link P2P accounts to all your funds.
  • Make sure all your security settings are set to “most private;” the default is often “most public.”
  • If you are going to send money to a new recipient through a P2P payment app, such as Venmo, for example, even to a person you know, you should either initially send $1 as a test or ask the person to send a request for the money. There are so many similar accounts like BobSmith01 and BobSmith02. The accounts can have photos but the photos are so small, it’s difficult to tell whether it’s the correct person.

“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 Engstrom. “Consumers don’t realize these online transfer payments are instantaneous and treated like cash, so when fraud strikes, you’re likely without recourse.”