NEW YORK (AP) – Venmo, PayPal and CashApp customers should not hold their funds with these apps long-term because funds may not be safe during a crisis, the Consumer Financial Protection Bureau warned Thursday.
The warning comes several weeks after the failures of Silicon Valley Bank, Signature Bank and First Republic Bank, all of which experienced bank runs after anxious customers with uninsured deposits withdrew en masse.
The Federal Deposit Insurance Corporation insures bank accounts up to $250,000. But money stored in Venmo, CashApp or Apple Cash is not held in a traditional bank account. So, if a bank run-like incident occurs with these payment apps, those funds may not be protected.
Some of the funds may be eligible for pass-through insurance if customers engage in certain activities with the apps, the CFPB said, but in general the apps aren’t covered by deposit insurance by default. For example, when a customer opens a PayPal savings account, they have deposit protection through PayPal’s partner bank, Synchrony Bank. However, the general PayPal account is not insured. Apple Cash, which can be insured through Green Dot Bank, requires a user to verify their identity in order to receive deposit insurance.
“We note that stored funds may be at risk of loss in the event of financial distress or failure of the business operating the non-bank payments platform and are often not deposited in an account with a bank or credit union and are subject to individual deposit insurance lacking.” said the CFPB in its report.
“Consumers may not know exactly when and under what conditions they would be protected by deposit insurance,” the agency added in its report.
Peer-to-peer payment apps and non-banks offering banking-like services have grown in popularity over the last decade. Venmo now has more than 90 million customers and recently announced it would allow parents to create accounts for their teenage children, potentially bringing tens of millions of new customers to the app.
Apple recently announced a savings account linked to its Apple Card, operated by Goldman Sachs. The savings account raised billions of dollars in deposits within days of its launch.
The Financial Technology Association, an industry group that represents both PayPal and Cash App owner Block, said in a statement that these products are safe.
“Dozens of millions of American consumers and small businesses rely on payment apps to better spend, manage, and send their money. These accounts are secure and transparent, with users receiving FDIC insurance on their accounts based on the products they use,” the association said.
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