Keep your money in a secured account, not an unsecured payment app, warned to Americans the Consumer Financial Protection Bureau (CFPB) in a report published on June 1. The growing popularity and utility of non-bank peer-to-peer (P2P) payment applications, including for crypto asset transactions, makes the risk of loss in the event of a crisis increasingly worrying, the watchdog said.
Public awareness of the coverage of the Federal Deposit Insurance Corporation (FDIC) it has risen since the bankruptcy of cryptocurrency platforms such as FTX, Voyager and others last year, and this year’s banking crisis led to the loss of hundreds of millions of dollars of customers, the CFPB said. Yet billions of dollars are stored in payment service applications without the benefit of FDIC coverage.
Many P2P applications, including PayPal, Venmo, Cash App, Apple Pay, and Google Pay, offer stored-value services “that are a lot like deposit accounts.” Meta Pay does not offer such services.
Payment service providers are motivated to encourage customers to store funds with them because those funds can be used by the provider for investment purposes, subject to legal restrictions, while these services rarely pay interest on stored funds. Suppliers are subject to the risk that these investments lose value.
Even if customer funds were held in an FDIC-insured account, Customer eligibility for coverage of transferred deposits is only determined after a bankruptcy has occurred, the CFPB said. Also, the insurance protects against failure of the bank, not the payment service, which is typically regulated at the state level and not subject to federal oversight. Most of the state regulation was designed for money transfer, not storage.
Therefore, Funds held by PayPal or Venmo at their program banks may be eligible for transfer insurance, but funds that have been invested by vendors are not eligible. Customers may not know where their deposits are stored.
Mobile payment services allow more and more crypto asset transactions. Crypto assets are not insured, although services like PayPal and Venmo allow customers to store crypto assets in their accounts.
Clarification: The information and/or opinions expressed in this article do not necessarily represent the views or editorial line of Cointelegraph. The information presented here should not be taken as financial advice or investment recommendation. All investment and commercial movement involve risks and it is the responsibility of each person to do their due research before making an investment decision.
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Investments in crypto assets are not regulated. They may not be suitable for retail investors and the entire amount invested may be lost. The services or products offered are not directed or accessible to investors in Spain.
