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What’s your favorite way to quickly settle a debt you owe with a friend, family member or roommate? If you said cash or “catch you next time,” you’re old — maybe even over 30. Otherwise, you probably said “Venmo.”

This mobile e-cash tool for young people wunderkind brings with it potential security and privacy issues, but they don’t seem to concern many young users. Not yet, anyway.

What Is Venmo?

In case you are on the wrong side of the age 30 “Venmo line” – so dubbed in a Quartz article recently – here’s a breezy primer: Venmo is a mobile app that lets people move money easily among friends. No credit card, no wallet, no fees and no nagging for unpaid drinks required. Just link the app to a debit card and spend away.

Venmo has competitors, but its reach is huge and its rise meteoric. Venmo Communication Lead Adrianne Wright told me Venmo processed $1 billion in transactions in January 2016, up from roughly $100 million per month two years ago.

The Venmo line represents more than a willingness to embrace a new kind of money system. It represents a willingness to trust gadgets on a whole new level, and a lack of concern for financial privacy. If you are under the Venmo line, you could probably learn a thing or two from your more suspicious elders. And if you are over it, ask a young’un nearby to educate you. Otherwise, you’ll probably get stuck paying the dinner bill soon, and you won’t understand a host of new terms, like “Venvy.” (For the record, if you notice friends buying each other drinks and pizza on a Friday night, and you are stuck at home, you suffer Venvy.)

‘Tremendous Engagement’

Venmo has a feature that broadcasts transactions between people in a news feed a bit like Twitter. Crazy, right? Who wants to tell the world they sent rent money to the roommate? Who wants everyone to know you are too cheap to buy a girlfriend or boyfriend dinner and make them go Dutch all the time? Turns out, Venmo says, this social element is the app’s secret sauce. Thanks to the newsfeed, Venmo users open the app 2-3 times per week, even if they aren’t transacting. (“Tremendous engagement,” the firm called it.)

Venmo’s secret sauce hasn’t escaped the financial world. The app was acquired by PayPal when it bought Braintree for $800 million in 2013. A consortium of banks recently announced it was creating a Venmo competitor. This news isn’t all that surprising given each Venmo transaction takes away the transaction fees or customer interactions that would otherwise go to the banking industry.

But Venmo has a lot of advantages over banks. As a new money system, Venmo isn’t saddled by the many rules and regulations that banks must face, including some federal consumer protection laws. And it makes this clear on its terms and conditions/security page. For example, Venmo is only for payments among trusted parties, and offers no “buyer or seller protection.”

Buying something with a credit card, on the other hand, offers consumers broad liability protections.

With a Side of Fraud Concerns

While the social component might freak out those above the Venmo line, this uninitiated group may be more surprised to find that anyone would give a mobile app direct access to their checking account — and the ability to move up to $3,000 out of it. In fact, until about a year ago, all a criminal generally needed to access a person’s Venmo account was their username and password, barring intervention for Venmo’s backend fraud detection software. In April, after some embarrassing press, the firm added two-factor authentication to make this kind of theft much harder. Still, the slow adoption of basic security could be considered a red flag for some customers, as could a list of complaints against the firm made by the California Department of Business Oversight back in 2014.

“We are continuously improving product and security measures to make it easy and safe for people to send and receive money with people they trust,” Venmo’s Wright said.

Another sticking point for the fraud-aware and security-minded: Venmo transactions can be canceled after they appear to be completed on the app, which provides an opportunity for criminals on online classified sites to steal from consumers. They could simply Venmo the money, accept delivery of a purchase and manipulate Venmo’s system to cause the payment to be reversed. To its credit, Venmo discourages transacting with strangers on its website.

“We always encourage our users to avoid payments to or from people they don’t know, especially if it involves a sale for goods and services (like event tickets and Craigslist items), as they may be making themselves susceptible to fraud,” Wright said. “As a security measure, Venmo reserves the right to reverse payments made in violation of the Venmo User Agreement, including payments for which there are insufficient funds, payments made by a personal account for business, commercial or merchant transactions, and payments that Venmo reasonably believes appear suspicious, fraudulent, or unauthorized.”

Privacy Problems?

In addition to fraud concerns, Venmo’s social element raises some obvious privacy (and security) issues. There’s good reason to avoid leaving a trail of transactions behind for the public to see. A website named Vicemo.com makes this point by displaying transactions allegedly involving drugs, sex, and alcohol. Most posts that end up on Vicemo are (probably) a joke, but who wants an employer to see that anyway? Other researchers have shown how easy it is to take publicly available transaction data and derive an uncomfortably complete picture of how Venmo users spend their days (and nights).

Moreover, sharing creates fraud concerns. MIT researchers published a paper in 2014 showing how easy it would be to take public Venmo transaction data and use it for a social engineering attack. Of course, like other social media apps, there are ways for users to control who sees their data.

“Venmo gives users the option to keep their notes private, and only visible to the person who is receiving the payment on the other end,” Venmo’s Wright said.

And there’s one more potential cost of getting hooked on a very social digital currency – loss of the old kind of social currency.

“Are we nickel and diming our friends,” wrote Meghan Modafferi, who is under the Venmo line, on TheBillfold.com, worried the question made her sound old. “When a friend treats me to a drink, it conveys a confidence in our relationship’s reciprocity and a security in the fact that we’ll likely see each other again soon — and I’ll get her back at that point. We don’t have to keep exact tabs.”

But if you find Venmo’s ease of splitting a dinner bill or an Uber ride (Uber charges a fee to split) hard to resist, you’ll want to use Venmo safely. That goes double for senior citizens who are older than 30 and may not be as familiar with person-to-person payment apps. So here are some safety tips to consider.

  • Add a PIN to your app. It’s optional, but there’s no reason not to. That will stop, or at least slow down, anyone who gains access to your phone from initiating a transaction.
  • Don’t pile up “Venmo bucks.” When you are paid, you can leave the money “on the app” or move it back into your bank account. Move it back. Your money on Venmo is not insured by the FDIC or protected by many banking regulations. Sure, leave a few dollars in there if you like, but there’s no reason to let it pile up to triple digits. Also, Venmo’s terms of service mention you forfeit any right to interest payments by leaving money there, so sweep it into your savings account often.
  • Deactivate transaction sharing from both sides. Don’t broadcast when you make payments, and disable sharing of “transactions involving you” in settings.
  • Pay a very, very limited group of people using the app. Sure, you’ll probably do that at first, but as you get used to it, you’ll probably expand your Venmo friends circle. Ask yourself: Will your roommates’ little brother’s cousin really come through with the concert tickets?
  • It bears repeating: Refrain from using Venmo to buy things from online classified sites at all costs. 

Remember, if you have overshared and/or have reason to believe your personal or payment information has been compromised, keep a close eye on your financial accounts. You may want to also want to monitor your credit scores. A sudden drop in credit scores is a sign your identity has been stolen. (You can monitor your credit by pulling your credit reports for free each year at AnnualCreditReport.com and viewing your credit scores for free each month on Credit.com.)

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Image: nensuria

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