Mobile payment apps have made it easier to pay friends and family without cash.

They’ve also given criminals another way to commit fraud: stealing your money or personal data. If you’re one of the three-quarters of adults in the United States who have used a payment app, you need to know how your money or personal information may be at risk.

What Are Payment Apps?

Apps such as Venmo, CashApp, Zelle^® and PayPal are known as peer-to-peer payment applications. They allow you to pay people you know, like your neighbor at a garage sale or a dog groomer, directly without having someone’s address or bank information. You don’t have to carry cash or find your checkbook.

To start using a payment app, you create an account on your smartphone after downloading the app or on the company’s website on your computer.

Your name and identity are tied to some form of payment, like a credit or debit card or bank account. You can pay someone else directly with their identity from the app, such as user name, email or phone number.

Once you’re set up, you can start sending and receiving payments.

How to Avoid Payment App Scams

Payment app scams are part of a larger world of financial scams involving people impersonating familiar service providers and stores. Scammers will try to get you to send them money under false pretenses. They may pretend to be a loved one who has been arrested in a foreign country and needs cash to pay a fine. Or they message you that you’re a big contest winner, and all you need to do to claim your money is pay a small administrative fee to collect it.

Follow these tips to defend against common scam attempts and keep your money and identity safe.

• Don’t make a payment to claim a prize or sweepstakes winnings.
• Don’t give your account credentials to anyone that contacts you. Scammers can spoof the name of a bank or company on the phone. Call the bank or company directly to check on the issue. No bank or credit card company will initiate contact to ask for your information or ask you to send money.
• Don’t give out your personal information — name, address, bank information — because scammers can use that to steal your identity.
• Protect your account with a PIN or other type of multi-factor authentication offered by your bank, such as texting you a code or using facial recognition on your smartphone.
• Before hitting the send button, double-check the recipient’s information to ensure you’re sending money to the right person. You can’t get the money back if you make a mistake.
• If you get an unexpected text request for money from someone you know, speak with them directly to ensure the request is from them — and not a hacker who gained access to their phone or account.
• Don’t let strangers use your phone or let someone persuade you to send money to yourself. A criminal may make you think you’re sending money to yourself, but you’re actually sending money to a fraudster.
• Don’t try to refund money that was supposedly sent to you by accident. The sender will plead to have it back, and who wouldn’t want to help in that situation? Don’t fall for it. Use the app’s customer service process to determine if there actually was an error and, if so, to help you take care of it.
• Don’t pay for products before you receive them. You may never receive the item you ordered.

What To Do if You Feel Like You Were Scammed

A fast response is the best way to fight back if you feel you have been a victim of a payment app scam.

Contact the App

Contact customer service for the payment app directly if you think you have paid a scammer or see unauthorized payments. Each app handles these issues differently, but the basic advice is to use the app’s chat feature or report it through the company’s website.

That being said, if you use Zelle^® through your financial institution’s app or website, you will need to contact your financial institution directly.

Report to the FTC

If you paid a scammer with a mobile payment app or by using Zelle^® through your financial institution’s app or website, report it to the Federal Trade Commission at ReportFraud.ftc.gov. When you report a scammer, you not only help yourself but also other people who may be targets.

Make Sure Your Money is Safe

Here’s an important tip most payment app users overlook: the lack of federal deposit insurance.

If you’re enrolled with Zelle^®, your money is sent to the recipient within minutes¹. Many other payment apps, however, store money in the app until you transfer it to your bank, credit union or card account. While the money is stored in the app, it is more at risk of bank or credit union failure.

The Consumer Financial Protection Bureau warned that money stored in non-bank payment apps may not be stored in an FDIC member bank or an NCUA member credit union covered by federal deposit insurance. This situation means if the bank or credit union fails, you may be unable to recover your money.

Some apps provide pass-through insurance that insures against the failure of a bank or credit union where the app holds money. It does not cover the failure of the app itself.

The CFPB recommends regularly moving money from an app account into a federally insured bank or credit union.

If you’d like to see how Cadence Bank helps its clients deal with fraud and identity theft, visit our Fraud & Security Center to learn more.

Sources:

https://www.aba.com/advocacy/policy-analysis/letter-to-cfpb-on-p2p-payments-and-scams

https://consumer.ftc.gov/articles/mobile-payment-apps-how-avoid-scam-when-you-use-one

https://www.aba.com/advocacy/community-programs/consumer-resources/protect-your-money/peer-to-peer-payment-scams

https://www.consumerfinance.gov/about-us/newsroom/consumer-advisory-your-money-is-at-greater-risk-when-you-hold-it-in-a-payment-app-instead-of-moving-it-to-an-account-with-deposit-insurance/

¹ U.S. checking or savings account required to use Zelle^®. Transactions between enrolled users typically occur in minutes.

*Zelle^® and Zelle^® related marks are wholly owned by Early Warning Services, LLC, and are used herein under license.

This article is provided as a free service to you and is for general informational purposes only. Cadence Bank makes no representations or warranties as to the accuracy, completeness or timeliness of the content in the article. The article is not intended to provide legal, accounting or tax advice and should not be relied upon for such purposes.