Risks of peer-to-peer payments
Nearly two-thirds of millennials last year sent or received money using a peer-to-peer app, such as Cash, PayPal, Venmo and Zelle.
The apps are fast, and often all it takes to transfer money to another’s bank account is an email address or phone number.
But as the use of these apps grows, so do complaints about scams. The Federal Trade Commission added online payment systems to its complaint database last year, and more complaints about scams are appearing on social media sites. The schemes are similar: Someone pretends to be selling, say, concert tickets, dupes victims into sending money and then disappears.
Consumers have come to expect some form of protection when they link their bank accounts or debit cards to these apps. But when you’re using electronic forms of payment to make a purchase from another individual — instead of a traditional merchant — the rules are different and there’s less protection against fraud, says Sarah Grotta of Mercator Advisory Group.
If anyone ever took the time to read the fine print, they’d know this. For instance, according to PayPal’s purchase protection guidelines, when you send money through its friends-and-family P2P system, you’re not covered for any losses because you authorized the transaction. If someone hacks into your PayPal account to make an unauthorized transaction, however, you’re protected.
Venmo, owned by PayPal, states in its user agreement that personal accounts are meant to be used only between family and friends. Its definition of what’s considered an unauthorized transaction is similar to PayPal’s. The same goes for Cash.
Zelle, another P2P app, looks like a safer bet because it’s backed by big banks, such as Chase, Citi and Wells Fargo. But banks that have integrated Zelle into their systems stress that the app is for sending money to someone you know. If you do business with strangers and get scammed, you’re likely out of luck.
Grotta’s advice is never to send money to people you don’t know. If you’ve been hacked and money has been transferred from your account without your consent, contact your bank and the P2P service by email or phone as soon as possible. The P2P service will investigate your claim and determine if a full refund is due.
Ultimately, treat your P2P payments as you would cash. If you wouldn’t feel comfortable giving a stranger cash before receiving a product or service, don’t send that person money by Venmo, either. Once the money is gone, it’s gone.
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