Peer-to-peer payment apps are highly popular — especially among those under age 30 — but Zelle, Cash App, Venmo and Apple Cash each pose certain financial and privacy risks, Consumer Reports concluded in a recent study of U.S. P2P users.
Awareness of P2P risks has risen in the last two years, especially following publicity surrounding
But P2P apps also fall short in terms of providing safety, privacy, transparency and other protections for users, Consumer Reports said Tuesday after conducting a consumer survey and a deep evaluation of the four most common U.S. P2P apps' policies.
"Consumers are putting their privacy at risk when using a P2P app," Delicia Hand, director of financial fairness for Consumer Reports, said in a press release, adding that consumers also may lose money by sending an irrevocable P2P payment to the wrong person.
The Yonkers, New York-based nonprofit consumer advocacy organization, surveyed 2,112 U.S. adults in March 2022 to determine the depth of P2P penetration and frequency of use.
Consumer Reports found in its survey that 81% of U.S. consumers under age 30 have used a P2P app to pay an individual, compared with 64% of all consumers. Nearly one in five, or 18%, of consumers use a P2P app once a week, and 40% use a P2P app once a month.
Of those who use a P2P app at least once a week, 12% have sent funds to the wrong person and 9% have been hit by a scam, Consumer Reports said.
About half of P2P payment users surveyed said they somewhat or strongly agree they feel fully informed about the potential risks of using P2P apps.
From August through October 2022, Consumer Reports also conducted an independent examination of the policies of top P2P apps, including Early Warning Services' Zelle (owned by seven of the largest U.S. banks) along with Square's Cash App, PayPal's Venmo and Apple's Apple Cash. Consumer Reports met with the P2P companies to discuss the findings.
Examining the four P2P apps' publicly available documents found on company websites and apps — using a process developed with input from academics, fintech companies, regulators and consumer advocates — Consumer Reports said it found many gaps in consumer transparency and protection.
None of the four P2P apps fully reimburse consumers who are tricked by scammers into erroneously authorizing payments, according to Consumer Reports. Venmo will compensate users caught in scams, but payments authorized by the user that exceed the initial authorization are not covered unless the user notifies Venmo and rescinds the authorization, according to Consumer Reports' research.
None of the four P2P apps the organization analyzed will necessarily intervene or reimburse users when a payment is accidentally sent to the wrong user, Consumer Reports said.
All four of the P2P apps collect a large amount of personally identifying information about users and they often share this data with undisclosed companies for various purposes. Users have few options to delete their own data used by P2P apps, Consumer Reports found.
Consumer Reports is calling on P2P app providers to make changes in their risk and privacy policies before regulators step in.
Although Regulation E of the Electronic Funds Transfer Act currently requires P2P providers to investigate and reimburse only "unauthorized" fraud caused by third parties, Consumer Reports urges P2P providers to cover all types of fraud losses, including those where consumers mistakenly authorize P2P payments to scammers. One approach would be for P2P providers to create a fund to reimburse users who are tricked into sending money to criminals in scams, Consumer Reports suggested in its 49-page study.
The organization also recommends that P2P providers clearly state which security protocols they use to protect users' personal information, be transparent about FDIC insurance available for all P2P transfers and clearly explain reimbursement policies in case of fraud or error.
"P2P payment providers can raise the bar for consumer protection by taking more aggressive steps to minimize user risks," Hand said.
Zelle is reportedly considering a policy that would
Caution is also in order in light of the fact that Early Warning Services this week said it's planning to
"EWS and the banks should ensure they focus not just on being competitive in the retail space but ensuring these new wallets are able to manage fraudulent schemes that target consumers," Hand said in an email.
