Avoiding unexpected fees with payment apps: a guide.

• A survey by NerdWallet found that 80% of consumers have utilized a payment app.
• Federal oversight of digital wallets and payments is being supported by democratic lawmakers through a proposed rule by the Consumer Financial Protection Bureau, which mandates compliance with federal funds transfer, privacy, and consumer protection laws.
• Instantly transferring money or linking credit cards to payment apps like Apple Cash, CashApp, PayPal, or Venmo comes with a fee for the added convenience.

Lawmakers and regulators have intensified their examination of payment apps due to their rapid increase in popularity.

Instantly send money to friends and family or quickly buy goods online with just a tap.

According to a recent survey by NerdWallet, 80% of Americans use mobile payment apps, and 50% of those respondents use them at least once a week.

The Consumer Financial Protection Bureau estimated that the total transaction volume for all payment app service providers in 2022 was approximately $893 billion.

The agency predicts that tap-to-pay transactions from digital wallets will increase by 150% between now and 2028.

Meanwhile, there are growing concerns about financial safety for consumers.

The CFPB is concentrating on establishing guidelines and duties for non-traditional companies that provide services comparable to bank-based products, as stated by Amy Zirkle, the CFPB's senior program manager for payments.

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To that point, greater oversight of mobile payment apps may be coming.

Federal oversight of digital wallets and payments is being supported by democratic lawmakers on Capitol Hill through a proposed rule by the CFPB, which would require these platforms to adhere to consumer protection laws such as federal funds transfer and privacy regulations.

Payment app companies are being urged by lawmakers to provide clearer reimbursement policies for consumers who fall victim to fraud and to simplify the reporting process for users.

At a recent hearing on banking industry scams, Sen. Sherrod Brown, D-Ohio, stated that customers lose their money due to inadequate security measures implemented by payment apps and banks.

Experts advise consumers to comprehend the functioning of mobile payment apps, the associated fees, and the risks involved in storing money in these apps until new regulations are implemented.

How payment apps work

Payment apps such as Cash App, PayPal, and Venmo store payment information and enable users to make online or in-person payments and transfer funds to friends and family.

Zelle, a widely used peer-to-peer digital payment app, enables users to exchange money with friends and family members directly from their bank accounts. The app is linked to a bank or credit union account and facilitates the transfer of funds.

Unlike Cash App, PayPal, and Venmo, Zelle does not allow users to maintain a balance in the app.

A digital wallet, such as Apple Pay or Google Wallet, serves as both a payment app and a storage place for information like health insurance cards and loyalty cards from various merchants, including hotels and airlines.

Payment app fees can be costly

Sometimes, payment apps charge fees for the ease of transferring money or linking credit cards to the app, such as Cash App, PayPal, or Venmo.

Sending money through Cash App is free if it is processed within one to three business days, but instant payments come with fees ranging from 0.5% to 1.75%. In contrast, PayPal and Venmo, which is owned by PayPal, charge a fee of 1.75% of the transfer value or up to $25 for instant transfers.

If the user sends money to others using their PayPal or Venmo balance from their bank account or debit card, they will not be charged a fee. However, if they send a payment funded by their credit card, they will be charged a 3% fee for the total amount of the transaction. Similarly, CashApp also charges a 3% fee for payments tied to credit cards.

While Zelle does not impose an additional fee for instant transfers, it is advised to verify with your bank or credit union that there are no fees associated with Zelle transactions.

According to a NerdWallet survey, 33% of mobile payment app users link their apps to a credit card, and 24% usually pay a fee to instantly transfer money from the payment app to their bank account. These fees can quickly accumulate.

Money sitting in most payment apps is at risk

Experts caution that it's risky to keep money sitting in payment apps instead of transferring it to a bank account, as most people do.

Zirkle from the CFPB advised against treating the platform as a bank due to the differing level of protection for funds.

The money kept in most payment apps is not protected by Federal Deposit Insurance Corp., which offers coverage of up to $250,000 if a federally insured bank or credit union fails.

The CFPB advises against using money stored on payment apps for transactions because it is generally not insured, posing a risk.

If the app fails, the CFPB warns that "your money is likely to be lost or tied up in a lengthy bankruptcy process."

Experts advise linking payment apps to bank accounts and transferring money immediately upon receipt to safeguard funds.

Protect yourself from payment app scams

Although payment apps are not as heavily regulated as debit and credit cards, you could still be liable for unauthorized payments if a scammer gains access to your account.

Scott Talbott, executive vice president of the Electronic Transactions Association, stated that if a consumer unknowingly sends money to a fraudster, they have essentially authorized the transaction. The payments industry is committed to safeguarding consumers from falling victim to scams.

Consumers should never share their access codes, safeguard their accounts with a PIN or multifactor authentication, and verify the recipient's information before sending money, as advised by the Federal Trade Commission.

If you receive an unexpected request for money from someone you know, verify that it's from them and not a hacker who gained access to their account. If you suspect fraud, contact the payment app and also file a report with the FTC at reportfraud.ftc.gov.

Scott Talbott serves as executive vice president of the Electronic Transactions Association.

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