Some consumers are not aware that the funds they have in their payment app account are not insured
The CFPB does say that there are some options offered by Venmo and PayPal that will result in your funds being insured. For example, if you open a PayPal Savings account through the company’s banking partner Synchrony Bank, funds in that account would be covered by the FDIC. With Venmo, you might qualify for FDIC insurance if you deposit money to your account via direct deposit, use the “cash a check” feature, or use your Venmo account to buy or receive some cryptocurrency assets.
Funds you have stored on your payment apps like Venmo or PayPal are most likely not insured
In its report, the CFPB wrote, “We find that stored funds can be at risk of loss in the event of financial distress or failure of the entity operating the nonbank payment platform, and often are not placed in an account at a bank or credit union and lack individual deposit insurance coverage. Consumers may not fully appreciate when, or under what conditions, they would be protected by deposit insurance.”
If you’re not sure if you have coverage, your best bet is to pull the funds out and deposit them in an insured account until you can speak with someone at your payment app to verify whether your account is insured.
Funds stored in a payment app are at higher risk than funds deposited with an insured bank
While there is no option for holding an insured balance in Google Pay, in Apple Pay funds are eligible for pass-through insurance if the customer registers the Apple Cash account with Green Dot Bank. Note that the CFPB says that funds kept in a payment app are at a higher risk for loss than if the funds were kept in an insured bank account or credit union.
As the agency says, “Funds stored in a payment app may be at significantly higher risk of loss for a consumer than if it is deposited in an insured bank or credit union account. For instance, nonbank payment apps that invest customer funds in securities or other non-deposit products expose the company to the risk of insolvency if the investments’ value declines. The companies are also exposed to risk if customers demand their funds all at once.”
