Cashing in on cash apps this Christmas season

In 2014, Apple presented a new service to its users called Apple Pay. That was the first sign that your phone will also become your wallet in the years to come. Although it has taken on a slow start, contactless payment apps are on the rise.

The percentage of iPhones with Apple Pay activation was 10% in 2016, grew to 20% in 2017, and 50% by 2020, and now stands around 75% of its users activating an Apple Pay account.

The adoption of contactless payment has been accelerated by COVID-19 and a desire for consumers to avoid person-to-person contact when making in-store purchases. Since then, more places have accepted this form of payment and consumer habits are changing to include digital payment options.

However, Apple Pay is just one of many ways to make and receive financial transactions. Others now available to consumers are places like PayPal, Google Pay, Cash App, Zelle, and Venmo. Transaction volume on such apps was an estimated $893 billion last year and is projected to reach $1.6 trillion by 2027.

What are contactless payments?

Contactless payments are transactions made by tapping either a contactless chip debit/credit card, or payment-enabled mobile phone or wearable watch-like device over a contactless-enabled payment terminal. When you tap to pay, checkout is secure, convenient, and touch-free.

Recognizing contactless feature

If your debit or credit card features the Contactless Indicator on either the front or back of the plastic card, you can use it to tap to pay where you see the contactless symbol at many of your favorite stores. When prompted, bring your card or mobile/wearable device within a few inches of the Contactless Symbol on the checkout terminal. Depending on the terminal, you may tap on, above, or below the screen.

Is tap to pay a secured transaction?

Tapping to pay with your contactless chip card or payment-enabled mobile/wearable device is a secure way to pay because each transaction generates a transaction-specific, one-time code that is extremely effective in reducing counterfeit fraud.

Also, to insure not making an accidental payment with this type of transaction, the contactless chip card or payment-enabled mobile/wearable device must be placed within two inches of the Contactless Symbol located on the checkout terminal to activate the feature.

Paying back without cash

Peer-to-peer payment, also known as P2P, lets a person pay without knowing account details; simply search under someone’s name or phone number. The transfer is quick and generally free. Usage varies by age, but the majority of Americans are now using mobile payment apps. According to a study by Nerdwallet, 94% of millennials use mobile payment apps compared to 87% of Gen Zers, 88% of Gen Xers, and 65% of baby boomers.

As technology progresses in the fintech (financial technology) space, peer-to-peer (P2P) payment apps like Cash App have become the go-to payment option for many consumers.

Cash App allows individuals to quickly receive and send money to other people from their mobile devices. In addition to mobile banking, Cash App also offers the option to purchase stock and Bitcoin through its platform. The company has even made it possible to file taxes through its Cash App Taxes feature.

Warning about protection

Unlike deposits in savings and checking accounts at federally insured banks, funds stored in many “peer to peer” apps aren’t automatically protected, potentially putting cash at risk if the app’s parent company stumbles financially, the Consumer Financial Protection Bureau warned in a consumer advisory notification this year.

After getting a payment say, after sharing a meal with a friend, users receive funds in their app account. The money stays there until users move the money into their bank accounts. Some users, however, leave money in the apps for future payment, treating them as traditional banks. That is a concern, the consumer bureau said, because funds in the apps’ “stored value” accounts may not carry F.D.I.C. protection. So if the parent company were to go out of business, someone holding money this way may lose it.

The apps do team up with F.D.I.C.-insured banks to offer accounts with “pass-through” F.D.I.C. insurance protection. However, users may have to take extra steps or sign up for certain services to activate such coverage. Cash App balances, for instance, can be covered by an F.D.I.C.-insured partner bank if a user successfully applies for the company’s debit card. Also, if an adult sponsors an account for a minor, balances in both accounts are insured by the F.D.I.C., according to Cash App’s website.

Venmo balances can be covered by deposit insurance at partner banks when customers use the app’s direct deposit or check-cashing options. Apple Cash users must register their accounts with its partner bank, Green Dot, to obtain insurance coverage.

All that may be challenging for users to keep track of to keep their money secure.

Where to complain about a problem with a payment app

The Consumer Financial Protection Bureau says users can submit a complaint on its website at https://portal.consumerfinance.gov/consumer/s/login/SelfRegister.

Future of cashless

Increased confidence in the security of mobile wallets drove 56 percent more consumers to store non-payment items, including digital tickets, identification, loyalty cards, and billing statements in their mobile wallets.

It is true that only time can break certain habits of human behavior; but, is a cashless society a prediction for the future? Eventually, your virtual wallet could contain everything from your driver’s license to your insurance card. However, companies must learn that the process of replacing physical objects does not happen overnight as a consumer habit is one of the hardest things to change.