__Not many years ago, if a friend or family member reimbursed you for an expense, the reimbursement likely would have been via a check or in cash. Today, such reimbursements typically are made electronically using “peer-to-peer” (P2P) payment apps. The apps most widely used are Venmo, Cash App, and Zelle.__

Peer-to-peer apps, sometimes called “social payment apps,” are a subset of a larger field of electronic money-transfer products often described as “digital wallets.” All such products facilitate the electronic transfer of funds, but some — such as Apple Pay, Google Pay, and PayPal — are used primarily (though not exclusively) for commercial transactions, including online purchases and point-of-sale transactions via a smartphone. P2P apps, in contrast, are mainly (but not exclusively) used for non-commercial purposes, such as reimbursements, cash gifts, or charitable donations.

The blurred lines between various types of payment apps are becoming even less clear as time passes. Commercial-oriented apps have added P2P functions, while P2P apps now include business-oriented features. But, for now, Venmo, Cash App, and Zelle remain the primary platforms for making person-to-person transfers.

Below, we’ll highlight the main features of these apps and explain why you should be cautious about storing and transferring money via a payment app.

__Venmo__

Venmo is a subsidiary of PayPal, the multi-billion dollar financial technology company founded in the late 1990s. Although the Venmo app now includes the ability to make in-store purchases and invest in cryptocurrency, Venmo is still used mainly for facilitating P2P payments — such as paying a babysitter or splitting a lunch tab with co-workers.

The app is targeted at younger people and looks similar to a social media platform, with profile photos, animated stickers, and custom emojis. Venmo P2P transfers require both the sender and recipient to have a Venmo account.

Although Venmo doesn’t charge a transaction fee if the money being transferred comes from the sender’s bank account, debit card, or existing Venmo balance, a sender will incur a 3.00% fee if the funding source is a credit card. (Venmo's fee schedule is [here](https://venmo.com/resources/our-fees/es/).)

Venmo P2P transfers usually take place in just a matter of minutes. Received funds can be held in one’s Venmo account or transferred to a bank account. A standard bank transfer (1-3 days before the money arrives in a bank account) is free. An expedited transfer incurs a fee of 1.75% of the transferred amount.

Even though Venmo isn’t a bank, it encourages users to set up direct deposit of paychecks to the app. “Banks usually add a day or two for processing, but we get your money to you as soon as we have it from your employer,” says the Venmo website.

__Cash App__

While still widely used as a P2P payment system, Cash App (formerly Square Cash) has grown since its 2013 launch into a broader financial technology (“fintech”) platform. Today, Cash App users can still send, receive, and store money, but they also can use the app to trade stocks and ETFs and buy Bitcoin.

P2P transfers via Cash App are free (even international transfers), but transfers can occur only between Cash App users. For example, a Cash App user can’t send money via Cash App to a Venmo account. That said, money can be sent to anyone with a phone number or email address. An intended recipient who isn’t already using Cash App will be prompted to create an account. If the person fails to do so within 14 days, Cash App returns the money to the sender.

Funds received via Cash App can be held within a Cash App account or transferred to a connected bank. Standard “cash out” transfers (taking 1-to-3 days) are free. Expedited transfers incur a fee ranging from 0.5% to 1.75%. (Cash App's fee schedule is [here](https://cash.app/legal/us/en-us/card-agreement#toc-fee-schedule).)

To fund a Cash App account, a user can connect the app to a bank account, credit card, or debit card. Further, a user can add to an account by “depositing” cash at participating retailers, including Walmart, Walgreens, and Dollar General.

Like Venmo, Cash App encourages users to fund accounts via direct deposit of paychecks. “Cash App makes direct deposits available as soon as they are received, up to two days earlier than many banks,” notes the Cash App website.

__Zelle__

Zelle was launched in 2017 as a project of seven of the nation’s largest banks: Bank of America, Capital One, JPMorgan Chase, PNC Bank, Truist (formerly BB&T), U.S. Bank, and Wells Fargo. Today, Zelle is the most extensive P2P system, with more than 2,000 banks and credit unions participating. Last year, Zelle facilitated more than $500 billion in peer-to-peer transactions, plus tens of billions in commercial transactions such as rent payments.

Unlike Venmo and Cash App, which enable transfers only among users of their respective apps, Zelle is a bank-to-bank system, transferring money directly from one bank to another. For example, a Zelle user in Maine could send money from his bank account directly to his sister’s account at a bank in Oregon.

Money transfers between two registered Zelle users typically finalize within minutes. Account details remain private because transfers use a recipient’s email address or phone number as the key identifier. Although Zelle itself doesn’t charge a transaction fee, some participating institutions do, so be sure to ask if you are signing up.

Most participating banks offer access to Zelle via their websites, and many have included Zelle in their apps. Alternatively, a user can download the stand-alone Zelle app via [www.zellepay.com](https://www.zellepay.com/).

__Important cautions__

Peer-to-peer payment systems have made it easier to send and receive funds quickly and (in most cases) safely. However, along with convenience come at least three types of risk.

- __Human Error__

If a sender types the wrong name, email address, or phone number, money could end up in the hands of an unintended recipient. Because transfers are almost instantaneous, getting that money back might not be possible.

(Cash App employs proprietary recipient identifiers called $Cashtags to minimize errant transfers. If a Venmo sender and recipient are in the same location, Venmo generates a unique QR code identifier for the recipient. The sender can scan the code instead of typing in the recipient’s name or username.)

- __Fraud__

Fraud related to P2P apps can occur in multiple ways. In one typical example, a scammer offers items for sale online and asks for payment via a P2P app (rather than a payment system with greater buyer protections). The money is transferred, but the items purchased are never delivered.

P2P fraud can occur on any platform, but bank-to-bank Zelle transfers have been particularly prone to scams. Last year, *American Banker* magazine reported that Zelle member banks were facing “a flurry of class actions from consumers who say they [weren’t] properly protected from scams that make use of the peer-to-peer service.”

- __Business Failure__

Many Venmo and Cash App users may use the apps as bank substitutes, but money-transfer platforms are not banks. Money held within the apps is not federally insured. In the unlikely event that the companies that own Venmo or Cash App were to fail, users with money stored within the apps — as opposed to held in a connected bank account — could incur a loss.

“If [a] nonbank payment app’s business fails, your money is likely lost or tied up in a long bankruptcy process,” warns the federal Consumer Financial Protection Bureau in a recent advisory.1 The CFPB urges users of payment apps to avoid storing large sums of money in nonbank apps.

Although money held in a payment app typically isn’t insured, funds directly deposited to nonbank apps — such as paychecks, government benefit payments, and tax refunds — are covered by “pass-through” deposit insurance. Such insurance protects only against the failure of the bank (or credit union) where that money is actually held, not against the failure of the nonbank entity itself.

In contrast to Venmo and Cash App, which are nonbank apps, Zelle is a bank-based system. With Zelle, each account used for sending and receiving money is protected by federal deposit insurance up to the applicable limit of $250,000.

*[Image](https://soundmindinvesting.com/img/asset/Y2xvdWQvbDEtcGVlci10by1wZWVyLTEuanBn?fit=crop-28-57-1.2&w=1660&h=896&s=38e586080df808e90611680ae188b970) used with permission. *

Since 1990, do-it-yourself Christian investors have relied on SMI for proven strategies and trustworthy guidance.

Sound Mind Investing

Personal Finance

Today, reimbursements typically are made electronically using “peer-to-peer” (P2P) payment apps.  Are they safe?

MANAGE | Dec 14, 2023

How Safe Are Peer-to-Peer Payment Apps?

By: Joseph Slife

Since 1990, do-it-yourself Christian investors have relied on SMI for proven strategies and trustworthy guidance.

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