Understanding a Bank’s Regulatory Compliance with Payment Apps

As Venmo and Cash App Users Increase, Banks Need to Review Coverage and Policies

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As a more frequent Venmo user lately – making garage sale payments in exchange for goods and collecting basketball fees from parents on behalf of my child’s team – I was struck by a recent article, “Dealing with App Disputes,” published in the Electronic Payments Core of Knowledge (EPCOR) newsletter.  It highlighted the growing use of these applications, and ignited attention to the sheer number of banking customers using popular payment apps like this to move funds quickly.  It also got me thinking about a bank’s responsibility with reported errors and potential issues.

According to the EPCOR article, Venmo’s total payment value surged 52% — to $37 billion – in the second quarter of 2020 alone.  Yes, it said BILLION!  With over 60 million Venmo app users and 30 million Cash App users, that’s a lot of people using these payment methods, and many are your bank’s customers.

Now, for a mind-blowing statistic… those 30 million Cash App users now have more than $1.7 billion stored in their apps.  That’s right, it’s kept in digital holding like an old-fashioned wallet holds cash.  With one key difference: no one can dispute to a bank if something faulty happens to the cash in their wallet.  Cash transactions via Venmo and Cash App on the other hand, involve some careful Regulation E obligations for banks to consider.

The Importance of Regulation E with Payment Apps

Your bank is now, or will be in the future, faced with disputes and/or fraud concerns related to payment apps.  With the addition of the Prepaid Account Rule, the definition of “financial institution” was expanded to include payment app providers, and the new defined term “prepaid account” was added as a subcategory of the definition of “account” in 12 CFR 1005.2(b)(1).

The definition of prepaid account covers a range of products, including general purpose reloadable cards, as well as certain non-reloadable accounts and digital wallet products.

So what does this mean for your bank’s responsibility when a customer reports an error?

There are now two financial institutions involved (your bank and the payment app provider), both with equal Regulation E error resolution responsibilities for the same transaction.  A customer filing a claim directly with the mobile payment app provider, i.e., Venmo, does not alleviate your bank from its Regulation E obligations if the customer also files the same claim with the bank.

Make sure your bank has reviewed Regulation E to determine its coverage of and position on payment apps, including the rights and responsibilities of consumers, financial institutions, and payment app providers, and your bank’s requirements for any account holder disputes received.

Speaking to the ease and convenience of using payment apps, I believe this is a trend that is here to stay.  If your institution hasn’t performed a thorough review of Regulation E lately as it relates to payment applications, consider doing so immediately.

For additional questions, contact a KCoe community bank advisor.

 

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