Convenience is the main reason that person-to-person or peer-to-peer payment apps are surging in popularity. Essentially a digitized cash exchange, these payment apps offer a fast and easy way to send money to someone else without having to write a check or swipe a card. P2P payment apps are designed to simplify financial transactions between you and people you know and trust, such as splitting the cost of dinner with a friend or sending your portion of the rent to your roommate.
The most widely recognized P2P payment apps are PayPal, Venmo, Zelle, and CashApp, although there are many more. According to a Pew Research study, more than 75 percent of Americans have used at least one of these four payment app providers. This same study shows that while users appreciate the convenience of these payment platforms, they also recognize that using them may come with risks to their security and privacy. These concerns are well-founded, given that half of the complaints received by the CFPB in 2020 regarding P2P payments were fraud related. To further illustrate the risk, the Federal Trade Commission received nearly 70,000 complaints in 2021 from consumers who sent money to fraudsters via payment apps or similar services totaling $130 million in losses.
Be Aware of Common Frauds and Scams Associated with P2P Payments
- Everybody loves puppies. Puppy scams have become one of the most common scams using P2P payment apps. According to the Better Business Bureau, 80 percent of sponsored pet ads may be fake. Scammers will charge you for a “refundable” deposit when they don’t even have a puppy to sell you. Once they get your deposit, they will charge you for veterinary bills. Once the (non-existent) puppy is ready for its new home, they’ll charge you for insurance and shipping. Make sure that the breeder you are doing business with is legitimate and reputable. Another suggestion is to visit your local shelter or rescue to help a dog needing a home.
- Beware of the fake friend request. When a friend or family member needs money urgently, you want to help. Remember that it’s easy for scammers to spoof the profile of someone you know. They’ll send a message that they are in desperate need of money, and they need it quickly. For example, scammers (posing as your friend) may say they lost their bank card or cannot access their bank account. They’ll ask you to send them money and promise to pay you back. Always call your friend to see what’s happening before sending them money through a P2P transaction.
- A new twist on an old scam. Overpayment scams involve a scammer that tries to convince you that they paid you more than you were owed. For example, you have a book listed online for $10. A scammer sends you a “spoofed” email that shows she mistakenly sent you $100. She then asks you to refund the “extra” $90 that she mistakenly overpaid you through P2P.
- Fraudulent and canceled payment scams. Fraudulent payment scams occur when scammers connect a stolen credit card to a payment app, then look for big-ticket items being sold online. Once the seller accepts payment and sends item they realize the payment was not legitimate. Canceling payments before they clear is a scheme in which scammers “buy” something from you using a payment app, usually a large purchase. Before waiting on the transaction to clear, you ship the item. Once you realize the scammer has canceled the transaction, it’s too late.
- Phishing and Smishing. Be wary of ‘phishing’ (email) and ‘smishing’ (SMS/text) scams that impersonate customer support. Scammers will try to trick you into giving up sensitive account information. Look out for phishing and smishing scams that appear to come from legitimate businesses that you interact with regularly. It’s easy to fake logos. Real customer service representatives will not ask you for account details.
Understanding and Managing Risk
The NCUA wants you to understand the risks involved with these new payment methods. Transactions that occur on P2P payment apps don’t have the same built-in protections to detect and limit errors, unauthorized transactions, or fraud that you will find at a credit union, bank, or other financial institution. Money stored in nonbank payment apps such as a P2P digital wallet might not be held in an account at an NCUA-member credit union or an FDIC-member bank, which means it might not be protected by federal deposit insurance. Many P2P payment apps will not shoulder the cost of fraud which means that someone who paid scammers using one of these services may not be successful in getting their money back.
Use these Tips to Keep Your Money Safe When Using P2P Payment Apps
- Ask yourself if using a P2P payment app makes sense for your transaction. Use P2P payment apps only with people you know and trust, if possible.
- Always double-check the recipient’s information to make sure you’re sending money to the right person, even if it is someone you know. A good practice is to have the intended recipient send you a request before you send the money.
- Be informed about the fraud protection policies of the P2P payment app that you are using and understand whether and how you can recover funds if a problem arises.
- Consider linking your payment app to a credit card as a source of funds rather than a bank account. A credit card provides added protection if you don’t receive the goods or services you purchased.
- Protect your payment app and log in with the strongest authentication available, like Face ID or Touch ID, two-factor authentication, a strong password, or a PIN.
- Disable automatic logins and set up notifications for all payment transactions.
- Never provide sensitive account information to someone on the phone or to links in an email. Legitimate customer service representatives will not ask for this information. If someone contacts you requesting this information, contact customer service directly to confirm. Scammers can spoof emails and phone numbers.
- You should never have to transfer money to receive money from an app. If you are asked to do this, it’s a scam.
What To Do If You Are a Victim of Fraud, Scam, or Erroneous Transaction on a P2P Payment App
- Contact the P2P payment app provider to dispute a purchase, report an unauthorized transaction, and report fraud and scams.
- Promptly contact your credit union, bank, or other financial institution if you are the victim of a P2P payment scam, fraud, or other erroneous transaction. In general, Regulation E, which implements the Electronic Fund Transfer Act, requires that after a financial institution receives oral or written notice of an error from a consumer, the financial institution must promptly investigate the error. It’s important to note that an investigation doesn’t necessarily mean you’ll get your money back, but reporting the error will require the financial institution to investigate the matter.
Submit a complaint to the CFPB or call them toll free at 855.411.2372 if you have an issue with a payment provider. The CFPB enforces the Electronic Fund Transfer Act. The CFPB also has the authority to hold companies accountable when they commit unfair, deceptive, or abusive acts and practices.
Report fraud and scams to the Federal Trade Commission at ReportFraud.ftc.gov. These reports help the FTC and other law enforcement agencies stop scams. To file complaints about phone and text scams with the FCC, visit fcc.gov/complaints.
