PayPal. Venmo. Zelle. Dwolla. Google Wallet. Skrill. Payoneer. Payza. 2Checkout. Intuit. ProPay. WePay. These names sound like characters from the cantina scene in the original Star Wars movie. All that’s missing are R2D2 and C3PO. In fact, these are so-called peer-to-peer payment applications, or in people-speak, methods to pay your friends and relatives without having to give them cash.
Lately, I’ve been reading articles written by Henry Meier, the General Counsel of the New York Credit Union Association, which is the state trade association representing most New York-headquartered credit unions. While 1st Nor Cal is based locally, and some of his articles reference New York state laws that do not apply to us, he has written several thought-provoking articles relevant to all credit unions nationwide.
His most recent article discusses the convenience and underlying risk of these peer-to-peer money transfer systems. Though not all of these user interfaces are exactly the same, they all have the same purpose in common: facilitating small monetary transfers between individuals for things like splitting the dinner check, paying half the rent, or paying the annual franchise fee for the baseball fantasy league (my personal favorite).
The fees these entities charge vary widely. Some charge a flat fee; others charge a percentage (up to 3% in some cases) of the amount transferred; still others charge both a flat fee and a percentage. Several of the companies utilize simple e-mail to originate the transaction, and others employ their own software system (such as Intuit’s TurboTax or Zelle which is only offered by a limited number of large Wall Street banks).
The bigger issue is in the area of disputes. According to Mr. Meier, Venmo’s user agreement says clearly that they are not responsible nor liable if the incorrect amount of money is sent, the funds are not accepted by the intended recipient, or funds are sent to an incorrect recipient. For instance, if you send money to David Greene instead of David Green, there is no mechanism to cancel the transaction; hence, you are out of luck. Additionally, the user is responsible for ensuring adequate security of their data on their mobile device or tablet. In other words, it is never a good idea to perform financial transactions using a public WiFi network. Finally, many of the applications prohibit international transfers, which are inherently more risky.
At this point, someone may be thinking, “Ah, I can dispute the transaction through federal electronic fund transfer (EFT) regulations since I used my debit card.” Since the cardholder authorized the service to use their debit card, the liability stays with the cardholder. Similarly, if a credit card is used, truth-in-lending regulations are aligned with EFT regulations. Says Mr. Meier, “It’s no different than a member who hands over a credit card to a stranger at the bar and then complains to you that he spent too much.”
Although peer-to-peer systems are great for small transactions between people, consumer protections have not caught up with the technology. At some point, this will be fixed. However, at the current rate of technological innovation, it may be a long time before consumer rights and technology are balanced. As they say in Latin, “Caveat Emptor (Let the Buyer Beware).”
David M. Green