US Advisory on Payment App Risks and Bitcoin’s Position as a Secure Alternative

[NotATether]

TL;DR Breakdown

U.S. advisory warns about the risks of storing funds in payment apps like PayPal, Venmo, Zelle, and Payoneer, as they lack the same protections as traditional banks and credit unions.
Bitcoin emerges as a secure alternative due to its decentralized nature, providing users with sole ownership and control over their funds.
Recently, the Consumer Financial Protection Bureau (CFPB), a prominent U.S. government agency responsible for safeguarding consumer interests in the financial sector, issued a warning about the potential risks associated with storing funds in payment apps such as PayPal, Venmo, Zelle, and Payoneer. The advisory emphasizes that funds held in these payment apps may not benefit from federal deposit insurance, leaving consumers vulnerable to financial uncertainty in case of app failures or bankruptcy.

This advisory has sparked discussions about the security of alternative options, with Bitcoin emerging as a potential secure alternative due to its decentralized nature and user control over funds. This article delves into the U.S. advisory on payment app risks and explores Bitcoin’s growing adoption and its position as a secure alternative in the context of cryptocurrencies.


The Risks of Payment Apps
The CFPB’s consumer advisory raises valid concerns about the risks associated with storing funds in payment apps. While these apps offer convenience and ease of use, they do not provide the same level of protection as traditional banks or credit unions. The lack of federal deposit insurance coverage for funds held in payment apps means that if an app were to fail or go bankrupt, consumers could potentially lose their money. This vulnerability has become more apparent in recent times, with several bank failures highlighting the importance of understanding deposit insurance coverage when choosing where to store money.

In contrast to traditional banking systems, payment apps rely on third-party involvement in financial transactions. This introduces an element of risk as users are subject to the policies and operational stability of the app providers. Instances of frozen accounts or issues with app providers can result in restricted access to funds, causing financial inconvenience and uncertainty for consumers.

Bitcoin as a Secure Alternative
The advisory on payment app risks has led to discussions about secure alternatives, with Bitcoin being considered as a potential solution. Bitcoin, as a decentralized virtual currency, operates independently of any individual, group, or entity. Its core principle of self-sovereignty gives users sole ownership and control over their funds. Unlike payment apps, Bitcoin does not rely on third-party involvement in financial transactions, which eliminates the risk of frozen accounts or bankruptcy associated with centralized systems.

Bitcoin’s resilience and immunity to central control have made it an attractive option for individuals seeking financial security. Its decentralization means that it is not subject to the policies and stability of any particular institution or organization. This quality has led Bitcoin to be described as “digital gold” due to its perceived ability to act as a hedge against inflation. The portability, security, and divisibility of Bitcoin further enhance its appeal as a secure alternative to traditional financial systems.

Growing Adoption of Bitcoin
Bitcoin’s adoption has been on the rise in recent years. Major banks, financial institutions, and payment apps like PayPal have started offering crypto-related services, recognizing the demand for cryptocurrencies and the benefits they offer. The involvement of influential figures like Elon Musk, Jack Dorsey, and Michael Saylor has also contributed to the growing acceptance and adoption of Bitcoin.

While it is important to note that Bitcoin is not exempt from price fluctuations, its decentralized nature ensures that funds are not exposed to the same risks associated with payment app accounts. The price volatility of Bitcoin is characteristic of its market and is influenced by various factors, including investor sentiment, market demand, regulatory developments, and macroeconomic events. However, the fundamental security provided by Bitcoin’s decentralized design remains intact.

Bitcoin’s decentralized and trustless nature makes it resilient against single points of failure, ensuring that no central authority or entity has control over the network or user funds. This has instilled confidence in individuals who are concerned about the risks associated with third-party control over their financial assets.

Conclusion
The recent U.S. advisory warning about the risks of storing funds in payment apps has highlighted the need for secure alternatives. Bitcoin, with its decentralized nature and user control over funds, emerges as a potential solution. While payment apps lack the same level of protection as traditional banking systems, Bitcoin’s self-sovereignty and independence from centralized control make it an attractive option for individuals seeking financial security.

Source: https://www.cryptopolitan.com/payment-app-risk-bitcoins-secure-alternative/

Of course, it is well-known that you should not be using Paypal as a bank, given their business practices of locking you out of your own account using "limiting".  But the inclusion of the other payment apps inside this advisory is particularly telling. For one thing, it's indicating that these kind of services can basically shut down at any time, or fail, and the result would not be much different to FTX and Celcius.

This being a financial watchdog , naturally they are going to tell us to store our funds in a bank, it being "FDIC insured" and all. But we all here know better than that, right? Non-custodial wallets are the best, should you use them properly.

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[slapper]

Non-custodial wallets are the best, as long as they're utilized responsibly. The most critical aspect is to store our private keys securely. Let's say it's like owning a house: no matter how strong your doors and windows are, if you leave the keys lying around, it's not going to end well.

Moreover, while banks are FDIC insured, what's often overlooked is the insidious enemy called inflation. Your money in the bank is continuously losing purchasing power, which might be more detrimental than a temporary app failure.

However, I want to strike a note of caution here. While Bitcoin is indeed a secure alternative due to its decentralized nature, it's also subject to extreme volatility. The recent bear and bull cycles can attest to that. This is not to downplay the potential benefits of Bitcoin, but rather to highlight that all financial instruments come with their own sets of risks and rewards. This is a debate worth having!

[EarnOnVictor]

This is yet another good news, I love reading things like this and I hope everyone and government see the need for people to be in full control of their money/assets. The custodial apps and businesses like banks, PayPal etc have directly and indirectly reaped off people of their money, many of them like E-gold, Liberty Reserve, GlobalDigitalPay, C-gold and more just disappeared with people's money due to issues with the government and intentional scam. Such wouldn't have been with the self-custodial approach as you have all security to yourself, there can't be a foul play.

It saddens me when I read how people are being misrepresented, mistreated and scammed by the so-called Paypay, most of these are plain scams but they always hide under the legality of their operations to do this. And the government that is supposed to protect the rights of people would even do nothing about it.

At times, they do the right thing if you threaten them with court suits and some with big money that could go to court often win the case, but what about the many more that couldn't afford it?

They will just take away your money just like that, citing one excuse or the other. Bitcoin will solve all that.

[davis196]

The Risks of Payment Apps
The CFPB’s consumer advisory raises valid concerns about the risks associated with storing funds in payment apps. While these apps offer convenience and ease of use, they do not provide the same level of protection as traditional banks or credit unions. The lack of federal deposit insurance coverage for funds held in payment apps means that if an app were to fail or go bankrupt, consumers could potentially lose their money. This vulnerability has become more apparent in recent times, with several bank failures highlighting the importance of understanding deposit insurance coverage when choosing where to store money.

What's the point of storing funds in a payment app? Payment apps should be used only for payments. They aren't banks or investment funds.
I don't know about payment apps offering investment plans or paying interest/dividends. Maybe there are apps, which are offering such services.
AFAIK, the risk of a payment app going bankrupt is really small, because those companies invest the funds their gather from the customers in short term treasury bonds. The only way for the payment apps to go bankrupt is the company owner to exit scam. Such risk is really small, but it does exist.

[Flexystar]

Yeah seems like giving away funds to “centralised (centralised)” system and believing that our funds are safe. These payment apps are getting smarter these days. Though on one side authorities are warning for not keeping the funds on your payment apps, on the another side these apps are giving away promotional offers so that we could use it more and more. For example, discount offers, coupon codes, X% off on purchases and something like that. These are the ways they are pulling their clients.

I only see one way here, it’s the users who should be aware of this and how their funds are not secure there. They should only add it or have direct withdrawal from bank to the merchant via those app. Which means they won’t be keeping any funds within app.

[Husires]

Users are afraid of losing their money but I know a friend who has more than 100,000 dollars in his bank account and he does not remember the account number. However, he is reassured that the protection provided by banks and all that is needed is to sign a paper and with enough proof of identity to get your money, he feels safe, this A friend will not risk buying a hardware wallet for fear of losing the seeds and thus losing his money.
These same people are lazy and will try to deposit large amounts of money in the PayPal balance because it provides them with ease and the ability to withdraw at any time and buy what they need with a single click.

unless the FDIC moves a step forward and includes these companies in insurance, we may see a collapse like FTX with any major financial crisis.

[joniboini]

What's the point of storing funds in a payment app? Payment apps should be used only for payments. They aren't banks or investment funds.
I don't know about payment apps offering investment plans or paying interest/dividends. Maybe there are apps, which are offering such services.

I think they just want to warn people to not rely on other companies to store their wealth and use banks or other alternatives. Not really surprising since people can get really stupid sometimes. Not sure how it works overseas/in the US, but in my country payment apps have a limit on how much money people can store (around $700), so it is unlikely that people will use them to store all their wealth in the first place.

AFAIK, the risk of a payment app going bankrupt is really small, because those companies invest the funds their gather from the customers in short term treasury bonds. The only way for the payment apps to go bankrupt is the company owner to exit scam. Such risk is really small, but it does exist.

They are trying to sell insured services at the end of the day, so using a risk of bankruptcy/uncertainty will definitely get mentioned. They can also tell people about the lack of control over their funds when they use a third party, but that is counterintuitive if they want to sell banks. Even if they mentioned Bitcoin, I believe the end goal is definitely to push people to use banks more.

[Poker Player]

This being a financial watchdog , naturally they are going to tell us to store our funds in a bank, it being "FDIC insured" and all. But we all here know better than that, right? Non-custodial wallets are the best, should you use them properly.

Yes, non-custodial wallets are the best, but I prefer to have my net worth diversified. Bitcoin in HW, money in the bank, stocks and mutual funds in broker, a small amount of gold and RE. If something happens to one of my assets I still have another.

And it is not my case but cash in a bank I would have up to the limit guaranteed by the Government which is already high enough, and it doesn't make much sense to have more than that amount and not have it invested.

[Alpha Marine]

Users are afraid of losing their money but I know a friend who has more than 100,000 dollars in his bank account and he does not remember the account number. However, he is reassured that the protection provided by banks and all that is needed is to sign a paper and with enough proof of identity to get your money, he feels safe, this A friend will not risk buying a hardware wallet for fear of losing the seeds and thus losing his money.
These same people are lazy and will try to deposit large amounts of money in the PayPal balance because it provides them with ease and the ability to withdraw at any time and buy what they need with a single click.

unless the FDIC moves a step forward and includes these companies in insurance, we may see a collapse like FTX with any major financial crisis.

This right here is part of the problem. A lot of people are just lazy and do not want to take their own security up by themselves. They don't trust themselves enough. So they rather keep it with a centralized company that can keep it safe for the. I don't blame them. It's what they're used to and change can be hard. We were born into this system and a lot of factors will try to stop us from breaking out of that system because the system makes it comfortable.

Just as @slapper said, Bitcoin also comes with its own risk. There's no point in using Bitcoin for its security purposes and not being able to keep your coin secured by yourself.

Non-custodial wallets are the best, as long as they're utilized responsibly. The most critical aspect is to store our private keys securely. Let's say it's like owning a house: no matter how strong your doors and windows are, if you leave the keys lying around, it's not going to end well.

I love the analogy you used with the very secure house and the unsecured key. It gives a real-like definition of not protecting your wallet properly no matter how secure Bitcoin might be.

[_BlackStar]

-snip-

Yes, non-custodial wallets are the best, but I prefer to have my net worth diversified. Bitcoin in HW, money in the bank, stocks and mutual funds in broker, a small amount of gold and RE. If something happens to one of my assets I still have another.

Same here - but I don't really trust banks even though they offer annual interest as funder's benefit. I tend to think that my money will only be safer when I keep it private in a safe - this is meant to be a solution to prevent the bank from preventing me from withdrawing all my money when one or two problems occur.

I know asset diversification is a smart option - but banks are becoming less and less trusted as safe depositories for much of our money over the long term. You know that the bank gets very suspicious when we want to withdraw all the funds from the account - so they're bound to ask us a few questions where we want to spend it.

[Aanuoluwatofunmi]

Yeah seems like giving away funds to “centralised (centralised)” system and believing that our funds are safe. These payment apps are getting smarter these days. Though on one side authorities are warning for not keeping the funds on your payment apps, on the another side these apps are giving away promotional offers so that we could use it more and more. For example, discount offers, coupon codes, X% off on purchases and something like that. These are the ways they are pulling their clients.

I only see one way here, it’s the users who should be aware of this and how their funds are not secure there. They should only add it or have direct withdrawal from bank to the merchant via those app. Which means they won’t be keeping any funds within app.

That is why bitcoin is the only alternative to those payments platforms but many have mistakenly the solution with other cryptocurrencies other than bitcoin, as the world advances in development with the use of this digital currency against the fiat and other payment systems, bitcoin has been the only recognized digital currency for economy and financial acceptability and reliability, this is also seen with many of the organizations and industries implementing this same technology to advance their system including the former payment system others have been using right before bitcoin was introduced.

[Darker45]

Payment apps aren't a place to store funds. They aren't banks. They serve a particular purpose. There's a reason why they're called payment apps. They should strictly be used as such. They aren't savings apps.

However, at least in my country, there are payment apps that have evolved into digital banks. As such, they offer savings accounts. Money under these accounts are insured by the country's version of FDIC. They are also under the regulation of the central bank. Although I haven't studied them deeply, I assume the country's banking laws apply to them as well.

What Bitcoin offers, though, is entirely different. It's absolute control of your funds. No bank, whether traditional or digital, could offer the same.

[Fiatless]

Of course, it is well-known that you should not be using Paypal as a bank, given their business practices of locking you out of your own account using "limiting".  But the inclusion of the other payment apps inside this advisory is particularly telling. For one thing, it's indicating that these kind of services can basically shut down at any time, or fail, and the result would not be much different to FTX and Celcius.

This being a financial watchdog , naturally they are going to tell us to store our funds in a bank, it being "FDIC insured" and all. But we all here know better than that, right? Non-custodial wallets are the best, should you use them properly.

Truth can be covered but cannot be hidden forever. The Consumer Financial Protection Bureau (CFPB) is speaking the truth and it's great that it is coming from a US government agency. There is no difference between crypto exchanges and major payment platforms since both of them are not insured by the deposit insurance of the nation. Since you are not protected by any regulatory agencies it will be better to keep your investment safe by yourself which is called self-custody. You bear the risk of keeping your funds which is far better than delegating it to someone or an organisation.

The recent hack of the Estonia-based non-custodian wallet Atomic has brought awareness about using open-source wallets. Banks insure depositors fund against loss but they are not insured against inflation. Bitcoin stands out from the crowd because it is a currency, hedge against inflation and investment commodity.

[hatshepsut93]

The Consumer Financial Protection Bureau (CFPB) is speaking the truth and it's great that it is coming from a US government agency.

Bitcoiners have convinced themselves since day 1 of Bitcoin that the government and banks want to get them, but they are bravely fighting against their attacks and winning. Truth is, most governments don't see Bitcoin as a threat, because it's so tiny in terms of use, so it's beneficial for them to allow it to be an collect taxes from trading. Inside the US government there are many different views on Bitcoin, it's hard to tell which one will prevail. But it's impossible for the current status quo to last forever, because right now Bitcoin has no clear legal definition.

[Husires]

This right here is part of the problem. A lot of people are just lazy and do not want to take their own security up by themselves. They don't trust themselves enough. So they rather keep it with a centralized company that can keep it safe for the.

You can't teach your old dog a new trick.
We all get lazy doing simple things, but the experiences that happen around you are supposed to be a sign for you to stop being lazy and make some decisions. The bankruptcy of some banks requires you to think about what might happen in advance, or at least distribute your money or try to take any reaction instead of waiting until it becomes Your fears are real, and you will find the accompanying line for that bank very long and you may try to withdraw your money for nothing but that others do withdraw their money as well.

I'm going to guess that although some people have lost their money in the Atomic Wallet, some are still using it.

[bussybuddy]

The use of payment applications to store funds may present security and financial risks. This also depends on the security and reliability of the payment application providers. Bitcoin offers a decentralized solution and is independent from the control of centralized authorities, especially amid concerns about security and financial risks. As with any other new technology, the use of Bitcoin can also present risks and users need to understand the legal, security and financial aspects of Bitcoin before using it. The use of decentralized wallets also gives users more autonomy and independence when conducting their transactions.

[Poker Player]

Same here - but I don't really trust banks even though they offer annual interest as funder's benefit. I tend to think that my money will only be safer when I keep it private in a safe - this is meant to be a solution to prevent the bank from preventing me from withdrawing all my money when one or two problems occur.

Well, a safe, despite its name don't think it's very safe if the thieves know what they're doing. What it is better for is to have your money at your disposal immediately but I don't know about how much you are referring to as in Europe it doesn't help to have a lot of cash because there are countries with cash payment limits as low as €1.000 ($1.075).

I know asset diversification is a smart option - but banks are becoming less and less trusted as safe depositories for much of our money over the long term. You know that the bank gets very suspicious when we want to withdraw all the funds from the account - so they're bound to ask us a few questions where we want to spend it.

That is if you have a lot of money in the bank. Tens of thousands of dollars at least. Amounts like $5K you can have in the bank and you won't have any problems withdrawing it and much more depending on the country.

[Gyfts]

The Consumer Financial Protection Bureau (CFPB) is speaking the truth and it's great that it is coming from a US government agency.

Bitcoiners have convinced themselves since day 1 of Bitcoin that the government and banks want to get them, but they are bravely fighting against their attacks and winning. Truth is, most governments don't see Bitcoin as a threat, because it's so tiny in terms of use, so it's beneficial for them to allow it to be an collect taxes from trading. Inside the US government there are many different views on Bitcoin, it's hard to tell which one will prevail. But it's impossible for the current status quo to last forever, because right now Bitcoin has no clear legal definition.

Bitcoin doesn't have clear legal definitions and that's done on purpose. The legal framework has purposefully been left ambiguous because it allows for government law enforcement/financial agencies to target private enterprises who are left victim to undefined legal statutes. The SEC lawsuit against binance is predicated on this. They themselves conflate commodities and securities with unclear guidelines and then target Binance with frivolous lawsuits because the U.S. government can't get the statutory verbiage right.

The tax income from trading isn't going to be fueling the governments budget. It's within the governments interest that decentralized currencies do not compete with their own currency.

[justdimin]

Truth can be covered but cannot be hidden forever. The Consumer Financial Protection Bureau (CFPB) is speaking the truth and it's great that it is coming from a US government agency. There is no difference between crypto exchanges and major payment platforms since both of them are not insured by the deposit insurance of the nation. Since you are not protected by any regulatory agencies it will be better to keep your investment safe by yourself which is called self-custody. You bear the risk of keeping your funds which is far better than delegating it to someone or an organisation.

The recent hack of the Estonia-based non-custodian wallet Atomic has brought awareness about using open-source wallets. Banks insure depositors fund against loss but they are not insured against inflation. Bitcoin stands out from the crowd because it is a currency, hedge against inflation and investment commodity.

I think it's quite important that this comes from the top because that means it will be doing something about it as well, at least it is coming from people who do suggest it to be as good as it gets. I know that it is not going to hurt anyone on the long run but that's how it will act for the time being.

Paypal and all the other payment companies managed to run without trouble for a long time now and they need to be held accountable for what they have done so far, they are doing something that would hurt most people who use their companies, a ton of people have been abused by paypals policies and nobody has done anything about it. The fact that they can freeze any account they see fit has to stop, that's one of the reasons why crypto is so much preferable when transferring money.

[_BlackStar]

-snip-

Well, a safe, despite its name don't think it's very safe if the thieves know what they're doing. What it is better for is to have your money at your disposal immediately but I don't know about how much you are referring to as in Europe it doesn't help to have a lot of cash because there are countries with cash payment limits as low as €1.000 ($1.075).

I know it's not safe - but sometimes I also think all options have their own risks. For me it's safer to keep some money in a personal safe than in a bank account for whatever reason - but of course some people are more comfortable saving it in a bank account. After all I don't live in any European countries, so paying for something in cash in any amount is fine on my part.

-snip-

That is if you have a lot of money in the bank. Tens of thousands of dollars at least. Amounts like $5K you can have in the bank and you won't have any problems withdrawing it and much more depending on the country.

That's certainly true - but we're talking tens of thousands of dollars now, not a few thousand.