- Venmo and other
- PayPal, Inc., which owns Venmo, recently settled with the Federal Trade Commission over allegations that it misled users in multiple ways.
- A lesser-known service called
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Venmo just settled with the FTC over allegations it misled users — and I found the little-known app that will replace it once and for all
Venmo has such a stronghold on the mobile payment space, it's nearly impossible to avoid. But the app has some serious downsides.
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Venmo has some serious drawbacks — and not just the social feed.
On Tuesday, PayPal, Inc., which owns Venmo, settled with the Federal Trade Commission over allegations of misleading users in a variety of different ways.
The list of complaints included privacy concerns, claims of "bank-grade security systems" that actually weren't, and issues with transferring funds out of Venmo.
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A Venmo spokesperson provided the following statement regarding the settlement:
"Our users are the focus of everything we do and our goal is to ensure they have a positive experience when using Venmo, an app that is beloved by our customers. We are pleased to conclude this process with the FTC in a cooperative way. This brings to an end the investigation that included a focus on Venmo platform issues and practices prior to acquisition by PayPal. Since then, as a core part of PayPal's and Venmo's business and operations, we've taken steps to significantly strengthen our privacy and data security practices. The company will continue to invest heavily in programs designed to create better user understanding and to enhance privacy. We believe these investments will further support Venmo's unique user experience and the continuing growth of its role in the lives of our users."
If youve tried to transfer funds out of Venmo recently, you might have noticed a new warning message
In some cases, Venmo users lost out on real money, according to the FTC complaint. Someone who sold an item and used Venmo to complete the purchase, for example, could have handed over the item only to find out later that the transaction would not be completed as promised.
I learned this the hard way myself, when a friend sent me a payment of a few hundred dollars. I cashed out my balance immediately, and was notified that the amount would be in my bank account soon. But instead of appearing in my account as promised, Venmo informed me that the transfer could not be processed — essentially the same thing as a check bouncing.
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Venmo emphasizes that it should only be used between friends and people who trust each other, but even someone you know could have insufficient funds to complete a payment. I was able to sort it out, fortunately, but it would have been nice to know ahead of time that it could happen.
Now, Venmo displays a warning message with each request to transfer funds to your bank account:
The full notice goes on to explain that although Venmo displays an estimated arrival time for the deposit, it's not guaranteed that you'll get your money by that time. The transfer will first undergo a review process that could result in the transfer being delayed or canceled, or the funds being held by Venmo, among other outcomes.
Venmo is a third-party app, but theres a new service that transfers money directly between bank accounts
Venmo has such a stronghold on the mobile payment space, it's nearly impossible to avoid. I end up having to Venmo friends, since that's the app everybody already uses.
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But one of the biggest issues with third-party payment apps is that they are not banks — and lack the consumer protections that banks offer. That means the cash you keep in Venmo or a similar app isn't FDIC-insured, like your checking account balance is. If the app you use goes under, it can take any money you've left in the app with it.
A new service, called Zelle, solves that problem by sending funds directly from one bank account to another. It cuts out the extra step of sending your money through Venmo, and then having to "cash out" that amount — and rely on Venmo to process it as expected. Plus, cashing out is a step many people forget about or choose not to do. You can also transfer money immediately out of your Venmo account via your debit card, but it will cost you 25 cents to do so.
Transferring funds with Zelle happens instantaneously. A recent transaction I completed using Zelle blew me away by how quickly the money appeared in my account. It happened in less than a minute. I didn't have to wait for Venmo to send the money to my bank, a process that typically takes a couple of days.
Zelle works almost exactly like Venmo does, minus the social feed, and its probably already on your phone
Zelle is backed by major banks, which means you probably don't even have to download it to test it out. All you have to do is open your bank's app on your phone, and look for the menu option to "Send money with Zelle." From there you can send or request payments from your contacts — or anyone — using their phone or email address.
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Zelle is currently offered by over 30 banks, including Chase, Bank of America, and Capital One. It can also be downloaded as a standalone app, like Venmo. To use Zelle, you will need to have a US bank account.
Unlike using Venmo, Zelles interface varies between banks, which can create confusion
There are some downsides to Zelle, especially for new users. Even though transfers typically happen within minutes, it can take up to three days the first time you enroll.
Zelle, like Venmo, should only be used between people you know and trust — and the service isn't immune to scammers, even though it's backed by major banks.
It's also not the most intuitive interface, partially because it's different in each banking app. I bank with Ally, and using Zelle for the first time was relatively easy for me. But Bank of America's interface is a bit more cumbersome.
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Zelle was created by Early Warning Services LLC, a consortium of seven of the largest US banks — including Bank of America, JPMorgan Chase, and Capital One. Because Zelle is a collaboration between competing banks, it has taken years to build — much longer than it took Silicon Valley to churn out mobile payment apps.
Banks have a vested interest in seeing Zelle succeed, as the market for peer-to-peer payments continues to grow, drastically reducing the costs associated with handling checks and cash.
Consumers could be big winners too, since transferring money between friends and family could get a lot easier, faster, and safer through Zelle.
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