Why P2P Payment Apps Aren't as Safe as Credit Cards

CashApp, Venmo, and Zelle may be convenient, but they don’t offer fraud protection like Mastercard and Visa

puppy fraud multiple

Angela Kincaid was hoping for a puppy. What she got instead was a lesson in the shortcomings of peer-to-peer payment systems.

Trapped at home due to the COVID-19 pandemic and eager to replace a dog that had passed away, she did a Google search and landed on a site called Joyous Puppies.

It had detailed information about prospective dogs, photos of happy customers playing with their canine purchases, and a 20-year track record in the business, according to the text. The home page had a contact form, which she filled out, expressing her interest in a $600 Shih Tzu.

“That's when I got snookered,” she says.

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Her furry friend was a fiction created by someone who strung her along via email and text message, and then asked her to pay for the pooch using Zelle because his usual payment processing service was down.

Kincaid agreed.

Soon after sending the money, she was contacted by a fictitious transportation company requesting $900 to deliver the puppy in a temperature-controlled crate. She agreed to that, too.

“I didn’t want the puppy to get cold or hurt,” she says. “They said it was a deposit that would be refunded when the puppy left the plane.”

Once the money was sent, both the fake breeder and the transport company disappeared—along with any immediate hope of restitution.

Kincaid initially had no way to recover the funds because peer-to-peer payments are processed instantaneously, like cash. That's why P2P payment services don't offer fraud protection like credit cards, which aren't processed immediately. So consumers need to take it upon themselves to verify the the payment amount and veracity of the recipient. (For tips on how to avoid P2P scams, see below.)

“Consumers should only send money to people they know and trust when using Zelle,” said Meghan Fintland, a spokesperson for Early Warnings Service, the network operator behind Zelle, in an email to Consumer Reports. “Treat it like cash, and beware of ‘too good to be true’ situations.”

Still, “if a consumer believes they have fallen victim to a scam,” Fintland added, “they are encouraged to contact their bank, credit union, or Zelle immediately.”

Once you authorize the transmission of funds, you’re essentially on your own. That’s why it’s important to use CashApp, Venmo, or Zelle only with people you know and trust, according to Christina Tetreault, a financial policy analyst for Consumer Reports.

“Some of the same qualities that make P2P services so appealing to consumers—speed and convenience—also expose them to significant risks that users should take seriously and that both P2P service providers and government regulators should do more to mitigate,” she says.

The Doggone Truth

The companies that provide P2P payment apps typically don't return money sent to the wrong person either by accident or through a scam. They also recommend that you steer clear of transactions with strangers and all commercial enterprises. But you might not know that if you don’t comb through the long and detailed terms of service.

More than half of respondents to a recent nationally representative survey of people 18 and older by AARP incorrectly thought they could get their money back from these app companies. They expected the same fraud protection routinely provided by banks and credit card companies.

“I didn’t know that you can't get your payment back,” Kincaid says.

Angie Kincaid
After doing her due diligence, Kincaid finally got a puppy from a reputable breeder.

Angie Kincaid Angie Kincaid

But criminals appear to be well aware of the loophole. After the puppy scammer steered Kincaid to Zelle, the representative from the fake transportation company had her use a PayPal Friends and Family account linked to her credit card.

Those accounts, which are designed to send money to individuals, not merchants, are also processed instantaneously and may only offer fraud protection in certain circumstances. A traditional PayPal account processes funds more like a credit card, so it routinely offers protection.

A PayPal spokesperson, Bernadette Guastini, says the company offers robust purchase protection for all eligible purchases.

“Nonetheless, we encourage customers to always be vigilant online, to thoroughly research the merchants they are buying from, and to only use the Friends and Family payment option for its intended purpose–as a means for friends and family members to send funds for personal matters where no goods or services are being exchanged for payment,” she explains.

After contacting her bank, Kincaid says she was able to recoup the $900 she paid with her Friends and Family account. But she wasn't able to get any of the $600 she paid with Zelle.

A recent report from Javelin, a fraud tracking and prevention firm, found that P2P fraud has jumped a whopping 733% since 2016.

The scams run the gamut from ticket sales to offers for employment. But pet scams are among the most popular, especially as quarantined people look for “COVID puppies” to brighten their homes. There are hundreds of pet-scam complaints posted on the Better Business Bureau’s “Scam Tracker” website, with new ones appearing almost daily.

Jim Skaife and his wife, who live in Arcadia, Calif., were scammed out of $650 when they used their Zelle account to purchase a nonexistent Chihuahua puppy. “We reached out to Zelle,” he says, “and they said, ‘We'll log it and look into it, but we can't get you your money back.’ ”

Melissa Hern of Willow Springs, Mo., used CashApp to pay a $150 deposit for what she thought was an apple-head Chihuahua puppy advertised on Facebook. She also had no luck getting a full refund.

“I emailed CashApp through their online links; clicked every single link I could get hold of that day,” she says. She also called an 800 number listed on the company’s website only to be directed back to the app to file a complaint. “So I went back and did it again, and I never heard anything back from them.”

Stronger Protections Are Needed

Some P2P apps will try to mediate a dispute, but they won't reimburse money if they can’t negotiate a refund from the other party.

In some cases, a banking service or credit card provider can assist fraud victims, too, but there’s no guarantee.

Hern was able to get some money back after talking with her bank, but the Skaifes' credit union couldn’t offer any help. By law, credit card holders who have made payments in error using the card are liable for no more than $50. Purchases made with debit cards currently aren't protected in the same way.

According to Tetreault, the financial services industry and lawmakers aren’t doing enough to help P2P users.

“It’s almost impossible for consumers—even the rare ones who read user agreements—to understand their rights and obligations in the event of error or financial fraud,” she says. “The law needs to change, and until that happens, people need to be really careful.”

“Victims of fraud should be entitled to error resolution rights,” she adds, “even if they were tricked into authorizing a transfer of funds. Consumers who mistakenly send money to the wrong person should have recourse beyond trying to contact and reason with the recipient.”

Tetreault would also like to see the Consumer Financial Protection Bureau extend protections in the Electronic Funds Transfer Act that shield P2P users from unauthorized transactions to include payments induced by fraud.

“Preventing fraud is critically important to Cash App,” a company spokesperson told Consumer Reports. “We continue to invest in and bolster fraud-fighting resources by increasing staffing, educating our customers, and adopting new technology. We are constantly improving systems and controls to help prevent, detect, and report bad activity on the platform.”

How to Avoid P2P Payment Scams

Consumer Reports recommends taking the following steps to protect yourself from fraud.

• Send money only to people you know. Many peer-to-peer transactions are instantaneous and irreversible, a fact that scammers know and exploit.

• Don’t use P2P services for business purposes. The terms of service for most apps prohibit the use for purchasing goods and services. Look instead for a payment app specifically created for business users, like Square Cash for Business or PayPal (though not the Friends and Family option).

• Search the app for customer service contacts and procedures before you use it. That way you'll know where to go and what to expect when you need help.

• Keep your app up to date. If you have old software, you’re missing the latest security patches.

• File a complaint. Companies accredited by the Better Business Bureau, including Venmo and Zelle's operator, Early Warning Service, are required to respond to consumer complaints, says Katherine Hutt, a spokesperson for the bureau. You also can lodge a complaint with the Consumer Financial Protection Bureau's Consumer Complaint Database. The organization's policy has been to report problems to companies for them to resolve.

Image of Octavio Blanco, editor at CR with Money CIA

Octavio Blanco

My mission: To write stories that broaden readers' horizons and offer new solutions they can apply to their lives. Who I write for: My family, my friends, my neighbors, myself, and—most important—you. My passions: Music, art, coffee, cheese, good TV, and riding my electric bike (for now). Find me on Twitter: @octavionyc