Payment Apps: Convenience vs. Security

Popular Payment Apps May Lack Federal Insurance

Payment apps such as PayPal and Venmo (PYPL), along with Cash App (SQ) and Apple Pay (AAPL) offer convenient ways to spend and receive money. However, regulators at the Consumer Financial Protection Bureau, or CFPB, have issued a new advisory about how these apps differ from conventional banks.

“Popular digital payment apps are increasingly used as substitutes for a traditional bank or credit union account but lack the same protections to ensure that funds are safe,” said CFPB Director Rohit Chopra. “As tech companies expand into banking and payments, the CFPB is sharpening its focus on those that sidestep the safeguards that local banks and credit unions have long adhered to.”

The FDIC Difference

For many users, it’s common practice to use PayPal, Cash App, and similar services for direct deposit of paychecks. Others amass and hold considerable sums of money within the apps to use for everyday spending.

But how does convenience weigh against security? Though user-friendly, many of these platforms don’t provide the same protections as a traditional insured bank or credit union.

The Federal Deposit Insurance Corporation, or FDIC, insures deposits in commercial and savings banks to protect customers from the risk of bank closure. While some funds in select payment app accounts are deposited in FDIC-member banks, the services themselves lack FDIC insurance.

Reducing Your Risk

The CFPB underlines there are billions of dollars on the line for payment app users. However, the key takeaway is not to fear these apps, but to understand this rapidly-growing digital landscape and the ways your money is protected by an FDIC-insured institution.

It’s a good idea to read the user agreements of the apps you use to understand what would happen to your money if the company you are storing them with fails. Read more on the CFPB’s recommendations in the full report .

SoFi Checking and Savings members can earn up to $2M of FDIC insurance by enrolling in the SoFi Insured Deposit Program.^*

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^*SoFi Bank is a member FDIC and does not provide more than $250,000 of FDIC insurance per legal category of account ownership, as described in the FDIC’s regulations. Any additional FDIC insurance is provided by the SoFi Insured Deposit Program. Deposits may be insured up to $2M through participation in the program. See full terms at sofi.com/banking/fdic/terms/. See list of participating banks at sofi.com/banking/fdic/receivingbanks.

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