In Focus – SCCCU Blog

More than 75% of U.S. adults have used some form of payment app, such as PayPal, Zelle, Venmo, and others. And that number climbs to 85% for consumers under 29 years old, according to Pew Research Center.

Why have these payment platforms become so popular? They are convenient and easy to use. For example, you go out for a group dinner, charge the entire bill to your credit card (hello, rewards points), and then everyone sends you their share via an app. Easy. Done.

But here’s the catch: A lot of people just leave the money sitting in the app afterward. Life gets busy, and suddenly the app balance feels like a little slush fund you can dip into later. The problem? That money isn’t as safe as you think.

Why Leaving Money in Apps Is Risky

When your money is sitting in these apps, it’s not insured the same way it is at your credit union. Deposit insurance only applies to funds sitting in a federally insured financial institution, such as SCCCU (an NCUA-insured credit union). If your money is sitting in Venmo or Cash App instead of being transferred back into your credit union account, it’s not eligible for that protection. And if the company holding your money fails, you could lose it.

Essentially, digital payment apps are being treated like banks and credit unions by consumers, but they don’t play by the same rules. Credit unions have guardrails in place to ensure funds are safe. Payment apps don’t.

The Popularity Problem

In 2024, the amount of money transferred globally on peer-to-peer (P2P) payment platforms reached $1.7 trillion. These apps have made moving money ridiculously easy that they’ve become part of many of our daily lives. So the takeaway isn’t “stop using them.” Instead, don’t let them hold your money. Transfer your balance quickly to secure it ASAP.

Safety Guidelines You Should Follow

Besides keeping your balance at zero, there are other ways to protect yourself when using P2P apps:

1. Never share your login information. According to Pew Research, approximately 13% of payment app users report having fallen victim to a scam. The easiest way to keep your accounts safe is to secure your login by using unique usernames and passwords and enabling multi-factor authentication whenever possible.
2. Understand the rules of payment app transfers. This part is critical. There’s usually no fraud protection with payment apps. Unlike credit or debit cards, which come with zero-liability protection, sending money through Venmo or Zelle is basically like handing over cash. If you accidentally send money to the wrong person, or worse, a scammer, you can’t cancel the transfer or get it back.
3. Pay attention to what the apps are doing with your money. If you’re leaving money in the app, be sure to understand who benefits from your money. Some payment apps invest users' funds in loans and bonds, pocketing the returns without paying you a dime of interest. They have every incentive to keep your money parked there. What’s worse, many user agreements are vague about where the money is held, whether it’s insured, and what happens if the company or partner bank fails.

Real-World Scams and Pitfalls

In addition to the structural risks, there’s also the ever-present scam factor. Fraudsters love P2P apps because money moves instantly, and transfers usually can’t be reversed. Here are some common traps:

• The “accidental” payment scam. A stranger sends you money “by mistake” and asks you to refund it. In reality, they used a stolen card, and once the fraud is uncovered, the app claws back the money — leaving you on the hook.
• Fake purchases. Buying something through a marketplace? Scammers may insist on being paid through a P2P app. Unlike PayPal’s goods-and-services option, Venmo and Zelle don’t offer buyer protection.
• Phishing attempts. Fraudsters send fake emails or texts saying there’s a problem with your account. Unfortuantely, clicking the link provided can compromise your login. Just remember that these platforms are designed for paying people you know and trust, not strangers.

Laws and Protections Are Still Catching Up

The good news is that regulators are aware of the risks. Some states are considering laws that would require app providers to maintain reserves and demonstrate their ability to meet their obligations in the event of an issue. But for now, these are just ideas, as there is no nationwide safety net in place. That means it’s on you to protect yourself by doing the following:

• Transfer balances out regularly.
• Use your SCCCU account for safekeeping (and ideally, for earning interest).
• Stay alert to scams.

The Bottom Line

Peer-to-peer payment platforms are here to stay, and they’ve made life easier in countless ways, but don’t let convenience blind you to risk. These apps aren’t credit unions. They don’t insure your money, and they don’t offer the same protections if you’re scammed. Think of these apps as what they are—fast, useful tools for splitting dinner, paying the babysitter, or reimbursing a friend. But not a place to stash your cash.