The Consumer Financial Protection Bureau (CFPB) has issued a cautionary statement advising customers of popular payment apps such as Venmo, PayPal, and CashApp to reconsider storing their money in these platforms for the long term. The warning comes in light of recent bank failures, including Silicon Valley Bank, Signature Bank, and First Republic Bank, where customers with uninsured deposits experienced financial distress and withdrew their funds en masse, leading to bank runs.

Unlike traditional bank accounts, funds stored in Venmo, CashApp, or Apple Cash are not held in standard bank accounts and are not protected by the Federal Deposit Insurance Corporation (FDIC), which provides insurance coverage of up to $250,000 for bank accounts. Consequently, in the event of a crisis akin to a bank run, funds stored in these payment apps may be at risk.

The CFPB acknowledges that some funds may qualify for pass-through insurance coverage if customers engage in specific activities with the apps. For example, a PayPal Savings account would have deposit insurance through its partner bank, Synchrony Bank. However, the general PayPal account and Apple Cash do not automatically enjoy deposit insurance. Users of Apple Cash can obtain insurance coverage by verifying their identity through Green Dot Bank.

The CFPB report underscores the potential vulnerability of funds stored in nonbank payment platforms during times of financial distress or if the operating entity of the platform fails. These funds are typically not held in traditional bank or credit union accounts and lack individual deposit insurance coverage. The report highlights that consumers may not have a comprehensive understanding of the circumstances under which their funds would be protected by deposit insurance.

In recent years, payment apps and non-banks offering bank-like services, such as Venmo, have gained immense popularity. With over 90 million customers, Venmo recently announced its intention to introduce accounts for teenage children, potentially attracting millions of new customers.

While the Financial Technology Association, which represents PayPal and Cash App’s owner Block, reassures users of the safety of these products, the CFPB’s warning reminds customers that the level of protection for their funds may differ from that of traditional bank accounts. It is crucial for individuals to be fully aware of the potential risks and limitations associated with storing money in these payment apps.