Consumers increasingly are using digital peer-to-peer payment (P2P) apps for convenience. However, that convenience can quickly turn to inconvenience as the result of these apps’ often-confusing design, poor customer service and propensity for being used for scams and fraud. The number of written complaints to the Consumer Financial Protection Bureau (CFPB) about these apps and other financial tools in the “mobile or digital wallet” category has skyrocketed in recent years, reaching new heights in 2021.
P2P apps were originally marketed as a way for friends to split expenses, and that’s how one consumer who shared his experience with us, Will B. of North Carolina, used to use Venmo. Last November, Will owed his roommate $55 for his share of the bills at their home. In a previous generation, Will would have handed over two $20s a $10 and a $5, or he would have written his roomie a check. But in the 2020s, it’s easier to do what Will did: hit send on Venmo.
It didn’t go through, so a short time later, Will sent the virtual money again. This time, it filled his roommate’s digital wallet with $55. However, when Will re-checked his Venmo account, the app had debited both payment attempts -- $110 total. When Will called Venmo about the double charge, customer service told him to call his bank to resolve it. His bank swooped in to the rescue and retrieved the extra $55 for him.
About a month later, Will discovered that Venmo had locked his account. Back on the phone with customer service, a representative told Will that he owed the company $55 and his account would remain inaccessible unless he paid them. While Venmo told Will that if he paid them, he could file a dispute and maybe get his money back, the company had lost his trust. He decided to keep his account locked, not use it again, and start using two competitors’ apps.
Will did not register a complaint with the CFPB. Probably, most people who have problems with Venmo and their competitors don’t. But as usage of these apps has exploded in recent years, so have the number of complaints in the CFPB database. Of 9,277 consumer complaints since the CFPB created the “mobile or digital wallet” category in 2017, more than half came in the 12 months preceding April 2021, then that month, consumer lodged a record 970 complaints. Three companies — Paypal (which also owns Venmo), Square (which owns Cash App) and Coinbase — accounted for more than two-thirds of all digital wallet complaints through April 2021.
Ninety percent of all complaints were against just 10 companies, and while Will’s bank helped him get his money back, the businesses ranked 4th through 9th on the list are all banks, except for the parent company of the Zelle app. Several of those banks and a few others co-own Zelle.
The list of complaints in the digital category run the gamut, and include problems with:
Managing, opening, or closing your mobile wallet account
Unauthorized transactions or other transaction problems
Fraud and scam
So what’s a 21st century person to do? A new report from U.S. PIRG, Virtual Wallets, Real Complaints, offers some key suggestions.
Treat money in your P2P app like hard cash. Only use it for friends and others you both know and trust.
If possible, keep a separate bank account to link to P2P accounts. Do not link P2P accounts to all your funds.
If you are going to send money to a particular person for the first time through a P2P payment app, 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. Many accounts have generic names such as BobSmith02. The accounts can have photos, but the photos are so small, it's difficult to tell whether it's the correct person.
Ultimately, as more digital natives become old enough to manage their finances and paper checks continue their slide into obsolescence, we will need more legal protections for users of P2P apps. It’s crucial for policymakers to require app providers to investigate errors even when the consumer made the mistake or sent the money -- and to ensure that consumers are protected when they are defrauded into sending money.
Will B. shouldn’t have had to potentially lose money, let alone switch apps, because of an error he didn’t make. Neither should you.
Cover photo by grinvalds via IStock.