There are many scams in online payment apps. Here are 5 tips for users to protect themselves_2

As the use of peer-to-peer (P2P) payment apps becomes increasingly common in the U.S., so too does the risk of fraud. In light of the inadequate security measures from many providers, Consumer Reports is advising users to keep the following five tips in mind to protect themselves from potential scams.

First, always confirm the identity of the recipient before sending money. Just like many other scams, a simple verification with the organization the scammer claims to represent can unveil the truth.

Secondly, if you have confirmed the recipient’s identity, it’s wise to initiate the transaction with just $1. Even when dealing with someone you know, it’s unusual for them to request a random transfer. For strangers, once you’ve verified their identity, starting with a small amount allows you to ensure that you’re dealing with the right person before transferring larger sums.

Third, keep minimal funds in your P2P account. Once you receive payments, transfer the money to a traditional bank account quickly. This way, if your P2P account is compromised, the scammers won’t have access to significant amounts of money.

Fourth, be aware of the P2P authentication processes. Unlike credit cards, which have well-established regulations, P2P platforms lack rigorous standards. Users should enable all available verification methods to mitigate the risk of unauthorized access.

Lastly, regular reconciliation of your transactions is essential. Just like any financial accounts, it’s crucial to periodically review your P2P transactions to ensure their accuracy.

Federal records indicate that known online payment app scams have amounted to a staggering $210 million in 2023, marking a 62% increase since 2021. According to USA Today, the regulatory framework surrounding digital transactions lags significantly behind that of credit and debit cards, particularly regarding fraud prevention mechanisms. Although Congress is currently discussing legislation aimed at P2P fraud protection, known as “Protecting Consumers Against Payment Scams,” there is still a long way to go before it is implemented.

In their 2022 analysis, Consumer Reports evaluated the security, privacy, and transaction transparency of four major P2P payment apps: Apple Cash, Cash App, Venmo, and Zelle. In September 2024, they released an updated report that highlighted the need for the Consumer Financial Protection Bureau to compel these providers to implement more robust protective measures. The suggested improvements include:

1. A mandatory 24-hour waiting period for any transfers over $500, allowing consumers to halt payments if they can provide concrete evidence of fraud.
2. Establishing a 12 to 24-hour grace period where consumers can cancel transactions, similar to the stopping payment mechanisms used by traditional financial institutions.
3. P2P providers must establish clear and thorough internal investigation procedures, ensuring a higher ratio of refunds to consumers who have been defrauded.
4. Enhanced protections for payment disputes related to Zelle’s business transactions, aligning them more closely with the “Fair Credit Billing Act.”

When asked by FOX if their consumer protection measures were satisfactory, responses from various providers were fairly uniform:

Zelle stated, “From a technological standpoint, we monitor millions of transactions daily and share insights with over 2,200 financial institutions. Our app includes built-in notifications to alert users of transaction activity.”

Cash App commented, “We are committed to protecting consumer rights through a comprehensive strategy that includes prevention measures, dynamic monitoring, and educational outreach, all while continuously improving our systems.”

Apple Cash mentioned, “Our website offers a wealth of information to help users identify and avoid scams. Consumers should only transact with people they know; for unfamiliar recipients, the app will proactively issue warnings.”

PayPal and its subsidiary Venmo asserted, “We have a zero-tolerance policy towards fraud and are continuously enhancing measures to prevent scams at their source.”