In this photo illustration the Venmo logo seen in the background of a silhouetted woman holding a mobile phone. (Photo Illustration by Rafael Henrique/SOPA Images/LightRocket via Getty Images)
By Ken Sweet
Customers of Venmo, PayPal and CashApp should not store their money with these apps for the long term because the funds might not be safe during a crisis, the Consumer Financial Protection Bureau warned on Thursday.
The alert comes several weeks after the failure of Silicon Valley Bank, Signature Bank and First Republic Bank, which all experienced bank runs after fearful customers with uninsured deposits pulled their money en masse.
The Federal Deposit Insurance Corporation insures bank accounts up to $250,000. But money stored in Venmo or CashApp or Apple Cash is not being held in a traditional bank account. So, if there is an event similar to a bank run with these payment apps, those funds may not be protected.
Some of these funds may be eligible for pass-through insurance coverage if the customers do certain activities with the apps, the CFPB says, but generally by default these apps are not covered by deposit insurance. For example, if a customer opened a PayPal Savings account, it would have deposit insurance through PayPal's partner bank Synchrony Bank. But the general PayPal account is not covered by insurance. For Apple Cash, which can be insured through Green Dot Bank, it requires a user to verify their identity to get deposit insurance.
“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,” the CFPB said in its report.
“Consumers may not fully appreciate when, or under what conditions, they would be protected by deposit insurance,” the agency added in its report.
Peer-to-Peer payment apps and non-banks offering bank-like services have exploded in popularity in the last decade. Venmo now has more than 90 million customers and recently announced it was going to allow parents to create accounts for their teenage children, potentially bringing in tens of millions of new customers for the app.
Apple recently announced a savings account tied to its Apple Card that is operated by Goldman Sachs. The savings account took in billions of dollars in deposits within days of its launch.
PayPal, which owns Venmo, as well as Apple Inc. and Square, owner of CashApp, did not immediately respond to requests for comment.
Constituent service platform Indigov recently raised $25 million in a Series B funding round. Indigov bills itself as a constituent relationship management tool that helps elected officials improve the way they organize, respond to, and engage those they serve. The startup's services are being used by federal, state, and local governments across the country, including the U.S. House of Representatives. Alex Kouts, founder & CEO of Indigov, joins Cheddar News' Closing Bell to discuss.
The 2022 NBA playoffs are intensifying as four teams vie for an NBA finals berth. Tonight, Stephen Curry and the Golden State Warriors can book their finals ticket with a win over the Dallas Mavericks, while Miami will be feeling the 'heat' tomorrow night, facing elimination against the Boston Celtics.
And with the growing popularity of sports betting, the NBA playoffs offers a potential money-making opportunity for fans. Trysta Krick, host of BetMGM Tonight, joins Cheddar News' Closing Bell to discuss.
Snap stock saw the worst day ever after a large drop in price on Tuesday following warnings of revenue and earnings slowdown. This trend caught on with other social and digital media stocks due to fears that brands heavily relying on advertising get hit with the same inflation struggles. However, some analysts note that Snap may be a unique case due to a rapid, possibly unsustainable, expansion leading to the current grim forecast.
From Meta’s Oculus to PlayStation’s VR headsets, Cheddar News anchors Ken Bufa and Kristen Scholer cover the potential for this tech in Cheddar Connected as more heavy hitters like Apple look to take the stage.
Umbilical cord blood banking platform Anja Health raised $4.5 million dollars in a seed round led by Seven Seven Six, a venture capital firm founded by Reddit co-founder Alexis Ohanian. Anja Health offers a personalized, doctor-backed cord blood bank, which lets new parents freeze stem cells from their child's umbilical cord so they can be used to treat diseases in the future. It's a process Anja has called 'Hollywood's best-kept secret,' as celebrities like Kylie Jenner, Serena Williams, and more have all banked their umbilical cord blood. Kathryn Cross, the founder of Anja Health, joins Cheddar News' Closing Bell to discuss.
