Digital Payment App Best Practices

Zapping money from a payment app on your phone is an increasingly popular way to pay for things, or pay/receive money from friends and family. The Consumer Financial Protection Bureau (CFPB) estimates that digital app payments last year totaled nearly $900 billion.

A feature of some apps is that you can store money in the app—such as money you’ve been paid, or money you preloaded into the app—which can make it extra convenient and fast when you want to send money out.

But the CFPB has recently raised the warning flag if you’re doing this. Depending on the app you use, and the type of account you have, any money you have deposited at the app may not be protected by federal insurance.

Sure, you use it as cash. That’s the whole point. But as the CFPB points out, apps such as PayPal, Venmo, and Cash App are run by companies that aren’t banks. Thus, in the event they have any financial issues, the federal government is not obligated to step in and make sure you are covered up to FDIC limits, which for a single bank account is currently $250,000.

Now the likelihood of there being a problem is quite low. But that’s not the point. My concern is that if you or your kids (more than 8 in 10 young adults between 18 and 29 used a P2P payment app last year) use a payment app, don’t park much money in the app. You can always transfer money to/from your bank or credit union with just a click or two.