Money-sharing apps: Know the risks, transfer cash safely
New friend-to-friend money-sharing apps allow people to essentially wire money to one another with the tap of an app on their smartphone.
The purpose is to eliminate the annoyance of split tabs for dinner, drinks, taxies, rent, bills or anything else that requires pesky change, cash, checks or ATM fees.
Venmo, one of the most popular on the market, allows users to send and receive money from friends, acquaintances and strangers in close proximity.
An analysis of U.S. Federal Reserve data by Business Insider, a trade publication, shows cash is fading, checks are dying, and smartphone payments are skyrocketing. The Business Insider analysts project mobile payments could grow by 42 times between 2014 and 2018. And that number might be conservative with the rise of virtual wallets.
In 2014, Venmo processed nearly $2.4 billion in money transfers.
Its main competitor, Square Cash, has processed more than $1 billion in transfers since it started two years ago.
More cash sharing apps are in the works.
According to media reports, Apple plans to launch a peer-to-peer money sharing feature as part of Apple Wallet – an iPhone app that currently allows users to enter credit or debit card information and pay with their phone at certain businesses.
Facebook also has plans to launch a person-to-person money-sharing feature that would allow users to send and receive money.
The Venmo app not only allows friends to send money to one another, but it also allows friends to keep tabs on what their friends are paying for and whom they’re paying.
The app incorporates a social media aspect that allows users to see the transaction descriptions in a live feed, somewhat like a Twitter feed or Facebook homepage. Users can’t see the dollar amount – just the reason and who sent and received the money.
Venmo gained attention in April when a Columbia University student was arrested for drug charges and allegedly accepted drug payment from other Columbia students via Venmo.
The incident sparked a New York Magazine headline, “Columbia Students Regret Using App to Buy Drugs,” and a warning to students in a Gawker story that Venmo “essentially builds an accurate, time-stamped, Facebook-connected database of you breaking the law.”
Although most of Venmo’s popularity lies with millennials, its use could spread as they teach their parents new ways to send money them money at college.
And the app has a tie to Kansas. Two Venmo engineering techs left Manhattan, Kan., for Manhattan, N.Y.
Jeremiah Shirk, engineering manager for Venmo, and James Thompson, software engineer for Venmo, worked at Kansas State University before joining the Venmo team.
Is it safe?
Venmo says the app uses bank-grade security systems and data encryption. Venmo may seem more trustworthy than its competitors because cash sharing is the central feature of the program.
If a user’s phone gets lost or stolen, the user can log into their account online and revoke access from that device. The app also allows users to require a pin to lock the app
The app was designed for friend-to-friend payments, not classified-ad style buying and selling, like PayPal.
Venmo does allow some businesses to use the app, but the business has to apply and receive explicit authorization from Venmo.
Chuck Stones, president of the Kansas Bankers Association, said it’s apparent that money-sharing apps and virtual wallets are here to stay, but that he’s wary of the social media aspect to Venmo.
“The more information that’s revealed, obviously the more risk there is in people being able to track your financial history,” he said.
Stones and Eugene Vasserman, assistant professor in the computing and information sciences department at K-State, questioned Venmo’s claim of “bank-grade security systems.”
Venmo’s website uses the term “bank grade” in its security description online and also says it uses data encryption.
Stones and Vasserman said that term varies greatly from bank to bank. They both said the term doesn’t have any real meaning or standardization.
Vasserman said he feels more comfortable entering credit card information rather than direct bank account numbers into money-sharing apps because of uncertainties, such as hacking and information storage, associated with virtual payments.
Vasserman said he was impressed with one feature on the security page. Venmo has a responsible disclosure page for security researchers who want to report vulnerabilities they might find with the app. Individuals can encrypt messages to a secured address that allows only Venmo engineers to read the message.
Although the encrypted vulnerability-reporting page impressed him, Vasserman said he was not impressed with the site’s lack of transparency in its specific security system.
Vasserman said apps aren’t required to share that information, but that they often do in the interest of transparency to other engineers who analyze security.
He used Apple Pay as an example of a trustworthy security system because it shares the app design with consumers and engineers.
But Vasserman said he would caution against connecting a bank account to money-sharing apps and would instead use credit cards.
“As soon as they have my bank information I’ve lost control of (my bank account) numbers that have access to my money,” he said.
Vasserman pointed out that in addition to security, users should read the contract.
“Their security structure may be sound, but their contract may be worded where I’m screwed if I’m a victim of fraud,” he said.
Gabriella Dunn: 316-268-6400, @gabriella_dunn
Money-sharing apps
Venmo
▪ What: Venmo is a friend-to-friend money sharing app.
▪ How it works: Users can pay or request money from friends and write a description for the transaction. Then the transaction gets posted to a feed, somewhat like a homepage on twitter or Facebook, where friends can see the description, sender and recipient, but not the dollar amount.
▪ Who owns it: Pay Pal, which earlier this year purchased Braintree, Venmo’s parent company.
▪ Security: Venmo allows users to set a password in order to access the app. And if someone’s phone is lost or stolen, they can log into their Venmo account from online to deactivate the phone app.
▪ Cost: It charges senders 3 percent on credit card transactions and on some debit cards. It’s always free to receive money and it’s free for senders who connect a bank account or that have certain debit cards.
Square Cash
▪ What: Square Cash is a friend-to-friend money sharing app run by Square. Square also makes cash registers, card readers and sales systems for businesses, but those are not intended for friend-to-friend money sharing.
▪ How it works: Users connect a debit card, bank account or credit card through the app then pay friends who have the app by searching contacts, proximity or phone number.
▪ Who owns it: It’s owned by Square. You’ve probably paid for something on a Square cash register at a store in town. It’s an attachable card reader plugged into an iPad or iPhone and customers sign on the screen with their finger.
▪ Security: Its website says Square Cash uses the same safety standards and fraud detection used by Square cash registers and card readers for businesses.
The app allows users to set a CVV requirement for each purchase. The CVV number is the three-digit code on the back of a debit or credit card.
▪ Cost: Square Cash offers free friend-to-friend money transfers for debit cards and charges the sender 3 percent if they use a credit card. Businesses can also use Square Cash, but pay a 3 percent rate to accept credit and debit cards. Businesses that use the card reader and cash register have to buy those, too.
Snapcash
▪ What: The video and photo sharing social media app called Snapchat has a money-sharing function called Snapcash.
▪ How it works: Snapchat lets users place a time-limit on photos and videos they share with their friends.
Paying on Snapchat is the same as sending a message. A user simply types the amount with a dollar sign in front and presses send.
▪ Who owns it: Although offered through Snapchat, a company called Square runs the Snapcash feature, which is linked to a person’s Snapchat account.
▪ Security: Snapchat says bank and card information is stored with Square.
▪ Cost: Snapcash runs the same fee schedule as Square.
PayPal
▪ What: The PayPal app resembles a virtual wallet. Users can use PayPal at businesses and restaurants as well as to send and receive money from friends.
▪ How it works: The peer-to-peer payment feature works similarly to Snap Cash. It does not have a social media aspect.
PayPal is more commonly known for money transfers between buyers and sellers rather than friend-to-friend.
▪ Who owns it: PayPal is now an independent company. It was previously owned by eBay.
▪ Security: PayPal says it protects users with “next-level encryption” and heavily guards transactions from start to finish. PayPal also offers dispute resolution, which places a hold on a transaction until the issue is resolved.
▪ Cost: It’s free to send and receive money with a bank account on PayPal, but PayPal charges senders 2.9 percent rate and 30 cent fee for each transaction on credit and debit cards.
Apple Wallet
▪ What: Apple Wallet is a virtual wallet available on Apple products. It allows users to pay at businesses with their phone and is intended to act in place of a wallet. Apple combined Apple Pay with its digital ticket app called Passbook to create Apple Wallet.
Apple is reportedly in talks with bank systems about the friend-to-friend feature.
▪ How it works: To use Apple Pay in businesses, a person places their phone near a payment reader and uses fingerprint ID on their phone to submit the payment.
▪ Who owns it: Apple
▪ Security: Apple published the engineering design of its security measures, but without the details of the design.
▪ Cost: It’s still unclear how or if Apple will make money from its person-to-person payments.
Samsung Pay
▪ What: It’s a payment services similar to Apple Pay that allows Samsung users to pay via their phone at businesses. It doesn’t offer a friend-to-friend function.
▪ How it works: As with Apple Pay, Samsung Pay users put their phone near the card reader and pay using fingerprint ID on their phone.
▪ Who owns it: Samsung
▪ Security: Samsung says it stores user bank information separate from the rest of its accounts and says it uses “several layers of security.”
▪ Cost: The app is free to use.
Google Wallet
▪ What: Google Wallet incorporates spending at businesses with friend-to-friend money sharing in its app.
▪ How it works: The app allows anyone with an email address to use the app.
▪ Who owns it: Google
▪ Security: Each user has to enter a personal pin to access the app, make in-store purchases, or withdraw money from an ATM. Users can also deactivate the app if their phone is stolen or lost. Google says it uses data encryption, fraud protection and MasterCard liability protection to secure its system.
▪ Cost: Google charges 2.9 percent to send money using a debit card, but it’s generally free to pay at businesses and receive money using Google Wallet.
This story was originally published November 24, 2015 at 7:36 PM with the headline "Money-sharing apps: Know the risks, transfer cash safely."