5 Reasons to avoid cash payment apps
While convenient when paying friends, cash payment apps are ultimately a scammer’s most accessible option to take your money.
What is a cash payment app? Cash payment apps are alternatives to credit cards that allow one user to link a bank account and send “cash” to another user via an app. We commonly refer to them as peer-to-peer money transfer apps. While the list of payment apps is reasonably long, the big three are Cash App by Block (formally Square), Venmo by Paypal, and Zelle, owned by a consortium of banks. It seems straightforward, right? You create an account, link a bank account, and then send money to other people using their email or phone to identify the other user. Well, I promise things can be slightly more complicated than the “happy path” use case implies. To that end, I want to present five reasons you should consider before using a cash payment app.
You won’t get that money back if you pay a scammer by mistake.
Losing your shirt to scammers is a big problem on these platforms. If you get tricked into sending money to someone, you can kiss that money goodbye even if you can prove how a scammer misled you. Many of these payment apps tout “zero liability” policies that consider any transfers you “authorized” as not qualifying as fraud. Since you “authorized” the amount and designated a sender to receive the funds, it is your fault for sending it and not the payment app’s responsibility. You better be clear on who and how much you send someone via a payment app.
What’s even crazier is that even when the transaction is “unauthorized,” banks are reluctant to refund you, violating federal law. In some cases, once a receiver of your funds has “authorization” from you, they can fraudulently pull money from your bank account, which is one type of “unauthorized” transaction.
The good news is that the government has passed laws to protect you. The Electronic Fund Transfer Act (EFTA) and the Consumer Financial Protection Bureau’s (CFPB) “Regulation E” require banks to repay consumers for funds illegally pulled from their bank accounts without authorization. The bad news is that consumers were only getting refunded 47% of their reported amounts in Zelle in 2021 and the first half of 2022.
Even though the CFPB has regulatory authority over Zelle and other peer-to-peer platforms, it would appear that the law on the books doesn’t have enough teeth to compel banks to handle their responsibility and make the consumer whole for fraud. The CFPB is reportedly “thinking” of ways to strengthen their Regulation E law to clarify that fraud is within the scope.
So what happens when you can’t trust your bank to protect you against fraud and illegal activity? Well, it means that it is on you to protect yourself.
Terrible support for resolving issues
Suppose you expect the same phone support you might get by calling your bank or credit card company to deal with issues. In that case, you are in for a major letdown if you expect the same from a payment app. Many of these payment apps don’t have the bandwidth for live customer service reps and will encourage you to use their apps to lodge complaints and issues.
Here are the recommended ways to contact the big three if you sent money to a scammer:
- Cash App. Cash App recommends chatting through their app for the fastest service. To do so, open the app, go to your profile, and choose support. You can also get help through cash.app/help or by calling 1 (800) 969–1940.
- Venmo. Venmo recommends chatting through their app for the fastest service. To do so, open the app, go to your profile, and choose “Get Help.” You can also email Venmo through their contact form or call them at 1 (855) 812–4430.
- PayPal. Report it online through PayPal’s Resolution Center or call 1 (888) 221–1161.
Question for you to ponder. Each player knows about the insane levels of fraudulent activity on their platforms. These players are making tens and hundreds of millions of dollars from their consumers. Why are these platforms so overwhelmed and overrun with fraud complaints that they can’t be bothered to serve their consumers?
Illegitimate accounts fuel lousy behavior.
How in the world are there so many fraudulent accounts? Are there any actual controls to stop bots from creating these accounts? In a 2021 earnings call, PayPal (owns Venmo) chief financial officer John Rainey said the company identified 4.5 million accounts that they believe are illegitimate. However, the platform with the most significant issues is Cash App; illegitimate accounts are just one symptom. According to the Hindenburg report on Block (formerly Square and owner of Cash App), who interviewed former employees, Cash App has between 40%-75% fake accounts, involved in fraud, or were additional accounts tied to a single actual individual.
I know what you’re thinking. So what? There are lots of fake accounts. What’s the big deal? The problem with bogus accounts has everything to do with what bad actors do with them. Cash App’s policy allows users to change their names to ones that don’t match the ones they provided when they created their accounts. The rules allow users to hide their identity without notifying or requiring the platform’s approval. It makes it very easy to deceive other users.
For example, a scammer could change their name and picture to one of your friends and then send you a sob story asking you to send them money. It is happening. If you want to buy drugs without other people knowing it’s you, that is happening too. On an even more serious level, there are people using Cash App for activities relating to sex trafficking. The Hindenburg report goes into detail, citing non-project Polaris Project as providing their data that shows Cash App is “by far” the top app used in reported US sex trafficking. Former Cash App employees provided quotes saying, “Every criminal has a Square Cash App account” and “The signs are hard to miss: there is even a gang named after Cash App, with members arrested for fentanyl distribution.”
Illegitimate accounts are bad for everyone. You could be a victim of a scammer using a fake name or worse yet, helping to promote sex trafficking by inadvertently accepting or sending money to someone tied to sex trafficking when using a payment app.
1 in 10 payment app users has been scammed or had their accounts hacked
It’s hard to trust when trust isn’t earned or deserved. In 2021, Apptopia reported that fraud on Cash App was up more than 300% from the previous year.
As previously mentioned, it is hard to reach a natural person using customer support, creating another area for fraud called “search poisoning.” Bad actors have noticed that these payment apps have horrible support and are taking advantage of customers desperately trying to reach someone to discuss their issues using these platforms. The scammers are creating fake customer service numbers and pushing them to the top of Google search results. Some customers have lost money and called one of these fake support numbers, only to be duped out of even more cash by the scammer on the line. They offer to help users move money around and take it for themselves.
Cash App allows users to deposit their paychecks, tax refunds, and other direct deposits directly into their accounts. Cash App even gives users an option to have a physical debit card and lets their users invest in stocks and buy and sell Bitcoin from their platform. All of these functions are things that your bank would typically offer. For customers using these features, I would propose Cash App serves as their “bank.” Given this is happening, shouldn’t the cash app and the other payment apps take on the same responsibility to protect a customer that a bank is required to perform? Unfortunately, there isn’t anything that requires them to do this. Payment apps get to operate with barely any oversight, and yet they are reaping enormous profits for their shareholders. It is a shame you can’t trust these companies to look after you and shield you from this fraud!
Fraudsters are running sophisticated scams to take your money.
Scammers are savvy, and you have to be cautious to avoid their fraud schemes. A quick internet search will show you some of the methods out there. Governmental agencies are receiving so many reports that they have started posting scams to watch out for. The Pennsylvania State Police posted a community bulletin titled “The Zelle Scam” that details one of the more popular scams in use today.
The Zelle Scam
The fraudster sends a text message claiming to be from a bank’s fraud department stating the victim had a suspicious payment through Zelle and asks for the victim to verify the transfer. If the victim responds to the text, they immediately receive a phone call claiming to be from the bank’s fraud department and asking for the victim’s username to “verify their identity.” The fraudster asks for additional information, including notifying the victim they will be receiving a one-time code to their phone and a possible notification from Zelle about a transfer that has either just occurred or has occurred in the past. These are from the bank and Zelle, but the fraudster knows about them and has told the victim to expect them. They then ask the victim for the code to “verify” it. The fraudster has triggered a password reset request and tricks the victim into giving them the code to change the account password. Once the fraudster controls the account, they empty the funds.
The Zelle scam is a well-thought-out scheme. To defend against it requires you to know bank and Zelle policies to understand what they will and will not ask you over the phone as a customer. You need to be familiar with the fraud alerts your bank sends, hang up on anyone claiming to be from the fraud department, and call back the fraud number on your bank or credit card to ensure you are talking to the “real” bank fraud department.
It’s exhausting just detailing all of this. Let me end this section by saying that there are many variations to this scam, and others that are just as cunning exist to extract every penny you have. Be careful; I warned you!
Bonus: These apps track your location and use your data
I realize I stated I would give you five reasons to be concerned about payment apps. However, this last one is a significant privacy concern you should be aware of too. These companies track your location through the devices you use to transfer and receive money.
According to a former compliance employee at Cash App, they repeatedly saw patterns indicating their app use in sex trafficking. The employee also said, “You see a lot of Lyft or Uber rides late, always late at night between 11:00 PM and 5:00 AM, multiple rides in one night, things like that.” This former employee elaborated, “You’ll see things like hotel purchases and (the device) traveling. So it’ll go like Cleveland, Ohio, and like a Motel 6 and then Columbus, Ohio, and Holiday Inn, and then the next day they’re in Cincinnati, and then the next day they’re in Kentucky. Then they shoot over to Virginia, and you watch it travel.”
Cash App knows where you are, when you spend, how much, and for what you pay. They know all of this about you. But they aren’t trying to stop illegal activity even when they see it. They aren’t helping you with your fraud issues. I’m at a loss for why they NEED this information and how they use it without your knowledge. This sensitive information on their users seems to violate consumer privacy. We are giving them a blank check by using their apps to use our data and track us. You do whatever they want with our data. How would we even know, if not for former employees and watchdogs investigating to give some insights? It feels like we are trusting companies that haven’t earned it.
Conclusion
I hope this post gives you some things to consider the next time you send money with a payment app. Yes, these apps are supposed to make transferring money more convenient, and there is utility value in the core purpose. However, this convenience comes at a price that you can’t discount. If you made it this far, thank you. I know this feels like a “bash the payment app” article, but hopefully, you can see that they have earned all of these criticisms. For the record, each of these companies has “plans” to address these concerns. I am sure they are probably well in implementing new ways to combat fraud on their platforms. I am positive that none of them wants fraud to plague their platforms. I am just not sure how convicted they are to do everything that it would take ($$$) to fight the fraudsters and make their customers whole when a fraud scheme slips through and hurts their customers.
It’s never a good idea to only list the problems and not give any ideas around solutions. So, here goes my answer.
Don’t use payment apps unless you are sending money to someone you know and can verify the recipient has asked for you to transfer money. Don’t trust strangers and assume they are scammers. Watch your account balance and transfer history like a hawk. Turn on multi-factor authentication (MFA) and never share one-time or authentication codes with anyone via phone or text. You should keep small balances in the app just in case someone breaches your defenses and get access to your account.
Finally, if you need to transact with a seller or buyer that you don’t know and shouldn’t trust, use Purrchis because if it matters, you should have trust that you will get what you paid for. If you missed our article on Purrchis, you could read it here. We are putting a new spin on how to survive on a trustless internet when buying and selling with strangers. We are looking people to join our community to help us build this product. We need your input and support. Please find us at purrchis.com to join the movement.
