The Consumer Financial Protection Bureau (CFPB) warns that people may lose their cash in money apps such as Venmo, PayPal, CashApp, or Zelle if their cash holder fails.
The agency advises users to routinely move money out of the apps and into an account at an insured financial institution, such as a traditional bank.
But the fact is that traditional banks have been running dry on liquidity and facing big competition from online banking-only businesses.
Online banking-only companies have offered higher yield savings accounts attracting more and more people.
For example, Goldman Sachs (NYSE:GS) is currently making it difficult for Apple (NASDAQ:AAPL) customers to withdraw money from their savings account.
Apple’s savings account partnership with Goldman Sachs launched in April and now customers are reporting being unable to take their money out of the bank.
Nathan Thacker, who lives outside Atlanta, had been trying to transfer $1,700 from his Apple account to JPMorgan Chase since May 15.
Each time he called Goldman’s customer service department, he said he was told to give it a few more days, per WSJ.
The Apple savings account has attracted people searching for a high yield savings account.
It pays a 4.15% interest rate, but weary investors say banks are scouring for liquidity.
Are People’s Money Safe in Money Apps Such as PayPal and Venmo?
Money held in nonbank, peer-to-peer payment apps is not guaranteed for federal deposit insurance protection, which makes the funds more vulnerable, the Consumer Financial Protection Bureau warned Thursday.
First Republic Bank, one of the key leaders in regional banks, collapsed early last month, triggering a mini banking crisis, with two more regional banks following suit, says Valuetainment.
The CFBP director told CNBC, ““Popular digital payment apps are increasingly used as substitutes for a traditional bank or credit union account but lack the same protections to ensure that funds are safe.”
More than three-quarters of U.S. adults have used a payment app, according to the Pew Research Center.
Millennials made up the bulk of users in 2022 at 94%.
CFPB said Thursday it will continue coordinating with state and federal regulators to monitor progress on automated funds sweeping into insured banking accounts.
Until then, app users must be proactive in moving money into an insured financial facility until a method is adopted, the agency said.
PayPal and Cash App did not respond to requests for comment, however, the Financial Technology Association, which represents Block, PayPal and dozens of other fintech companies, said P2P accounts are “safe and transparent” and prioritize consumer protection.
“Tens of millions of American consumers and small businesses rely on payment apps to better spend, manage, and send their money,” a FTA spokesperson told CNBC.
“These accounts are safe and transparent, with users receiving FDIC Insurance on their accounts depending on the products they use.”
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