FTC Orders Venmo to Do a Better Job of Protecting Its Customers
- March 5, 2018
- Posted by: Mike Brown
- Category: Financial News
The FTC claimed Venmo was not clear enough in explaining how money moves from a customer's Venmo account to their bank account.
Venmo’s owner, PayPal, reached a settlement with the Federal Trade Commission (FTC) in late February. The settlement came about following accusations that stated Venmo didn’t protect its customers’ privacy and wasn’t completely upfront about when and how money was taken out of their accounts.
Venmo can be a convenient way to settle up with a friend when it comes to splitting the bill for dinner. But it can also be a bit risky when it comes to credit and bank account security if you’re trying to sell something online.
What Was the Complaint About?
According to the FTC, Venmo wasn’t clear enough about how money moves from a customer’s Venmo account to their bank account. In addition, the security safeguards in place were allegedly less than adequate. Because of those lapses, scammers have been able to pilfer money from some users.
As part of the settlement, Venmo wasn’t required to pay any penalties. The sole consequence is that both Venmo and PayPal must start offering a better explanation of how the process works. In addition, it must offer better protection for its customers.
Although Venmo has claimed to use what it deemed “bank-grade” security, the proper security measures weren’t in place until March 2015 according to the FTC said. To make matters more confusing for customers, the default setting on Venmo is the public setting, which isn’t a good overall option for guarding privacy.
These issues were prevalent before Venmo was acquired by PayPal. Since PayPal has taken control, it claims it has implemented measures for data security and protecting customers’ privacy.
The accusations against Venmo should be a wake-up call for other businesses that offer peer-to-peer mobile payments, said Adam Levin, founder and chairman of security firm CyberScout.
“Convenience should never trump security,” Levin told MarketWatch.
A Common Venmo Scam Against Sellers
Sellers, in particular, were wide open to falling victim to the Venmo scam in question. This scam doesn’t actually involve stolen information, but it does involve stolen merchandise.
A common Venmo scam occurs when a seller delivers an item after they received notification from Venmo that money had been moved to their Venmo account. This is actually when Venmo starts to work on processing the payment, so there is no transfer of funds just yet.
If a “buyer” acted quickly, they could have the charge reversed through Venmo. The seller would find themselves out of a payment and the item which was already shipped. At this point, the scammer has won, and sellers would typically take the loss and move on.
As mentioned, the settlement with the FTC aims to educate consumers on how Venmo processes payments. Next time, a seller would hopefully be cognizant of this delay in transferring funds.
At any rate, before selling anything online, sellers and buyers should review the insurance policy as well as terms and conditions of the online app or service mediating the transaction or interaction. At the end of the day, it falls on the seller to look out for a scam, and this fact doesn’t change with a transaction facilitated with Venmo. The same seller-buyer risks that are prevalent in individual online and day-to-day transactions are present in Venmo transactions.
People who use Venmo would be better off only using it to split tabs with friends or to make a payment to someone they know and trust. Furthermore, it’s a violation of Venmo’s terms to use a personal Venmo account for business purposes without authorization.