Peer-to-peer payment systems have seen tremendous growth over the past few years. The largest players in the space are Venmo, Paypal, Google Wallet, Square Cash, Apple Pay, and Zelle. The fastest growing and arguably the most popular today is Venmo. Venmo has realized so much success largely due to its fee structure, ease of use, and social networking elements. Venmo is in fact so popular that that app's name has become a verb! However, with ease of use also comes certain risks that you should be aware of.
First, and most importantly, Venmo was designed to be used to send and receive money only from people that you know and trust. Venmo doesn't offer the same buyer and seller protections as other peer-to-peer payment systems like PayPal- even though Venmo is actually owned by PayPal. Scammers are taking advantage of these weaknesses.
There have been numerous scams reported by Venmo users that often take the form of the victim selling something online. The buyer requests that they pay the seller using Venmo. The buyer/scammer sends money to the seller via Venmo. Venmo will then alert the seller that the money is in their Venmo account. The seller, satisfied that the payment has been received, ships the goods. However, what the seller doesn't know is that the buyer was using a bank account that was empty, stolen, or otherwise compromised, and the money never actually transfers. Part of what the scammer is leveraging is that just because money shows up in your Venmo account, it doesn't mean that it's in your bank account. The US banking system doesn't allow for instant ACH transactions. So there is a lag between when the money leaves an account and is transferred to Venmo.
The bottom line - Do not accept or send money on Venmo to someone that you do not know.
Another issue to be aware of is that if you accidentally pay the wrong person, you're probably in trouble. Once money is sent on Venmo the transaction is viewed by Venmo as complete. If you pay the wrong person, then you'll need to *request* that money back from that person. It's up to the receiver of the money if they are going to pay you back or not. Venmo's website makes it clear: "At this time, it's not possible to cancel a payment that's been sent to a registered user in Venmo."
However, if you accidentally pay someone who doesn't yet have a Venmo account, then this transaction can usually be cancelled. This actually happened to me when I paid a friend who was not yet registered for Venmo. I luckily was able to get the money back.
Another area to exercise caution is on your smartphone. Venmo doesn't automatically log you out of the app. So you'd want to make sure you have good controls on your smartphone itself and also consider turning on the PIN (or Touch ID / Face ID) feature so that you'll be prompted to authorize again every time you open the app.
Lastly, all of your transactions on Venmo are public by default. The social networking part of Venmo shows all user transactions to everyone on Venmo. The dollar amount is not shown but who you paid and for what is. To change this, update the privacy settings to be private.
Peer-to-peer payment systems are here to stay. And that's a good thing. Just exercise caution and understand the risks.
Breakwater Financial, LLC is a registered investment advisor. The content of this blog post is for informational and educational purposes only and is not to be considered investment advice. If you have any questions regarding this Blog Post, please contact us.