US regulators warn public not to keep money in PayPal, Venmo and other payment apps; here is why

tech.hindustantimes.com:

It is an undeniable fact that digital wallets and mobile payment services such as PayPal, Venmo, and others have changed how people transact financially on a daily basis. Credit and debit cards were said to be the technologies that declined cash transactions and now digital wallets are slowly replacing bank cards, as their popularity continues to grow. According to reports, the total transaction volume across mobile payment services in 2022 crossed $1 trillion for the first time and closed at $1.1 trillion. However, US regulators are now warning their citizens to not store large amounts of money in these apps or replace banks and credit unions with them because they do not offer security on users' money.

According to a report by CNN, the Consumer Financial Protection Bureau (CFPB) director Rohit Chopra issued a warning last week that payment services “are increasingly used as substitutes for a traditional bank or credit union account but lack the same protections to ensure that funds are safe”. Highlighting the scope of the danger, the statement added that more than three-fourths of US adults have at least used one payment app.

The biggest issue with payment apps and digital wallets is that they do not have similar protections from the federal government that banks and credit unions do. These federal protections are important since if the bank makes bad financial decisions, loses all of its money, and has to shut shop, the account holders will still have a certain portion of their money insured and the US government will pay out the sum. However, payment apps offer no such protection.

While the probability is quite low, banks can and have declared bankruptcy. In 2023, Silicon Valley Bank and Signature Bank both failed after