Keep your money in an insured account, not on an uninsured payment app, the United States Consumer Financial Protection Bureau (CFPB) warned Americans in a report released June 1. The increasing popularity and utility of nonbank peer-to-peer (P2P) payment apps, including for crypto asset transactions, makes the risk of loss in the event of a crisis ever more concerning, the watchdog said.

Public awareness of Federal Deposit Insurance Corporation (FDIC) coverage has grown since the bankruptcy of crypto platforms like FTX, Voyager and others last year, and this year’s banking crisis led to the loss of hundreds of millions of customer dollars, CFPB said. Nonetheless, billions of dollars are being stored on payment service apps without the benefit of FDIC coverage.

Many P2P apps — the CFPB lists PayPal, Venmo, Cash App, Apple Pay and Google Pay as examples — offer stored value services “that closely resemble deposit accounts.” Meta Pay does not offer services of that type.

Payment service providers are motivated to encourage customers to store funds with them because those funds can be used by the provider for investment purposes, subject to legal constraints, while the services rarely pay interest on stored funds. Providers are subject to the risk of those investments losing value.

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Even in the event that customer funds were held in an FDIC-insured account, the customer’s eligibility for pass-through deposit coverage is only determined after a failure has occurred, CFPB said. Furthermore, the insurance protects against the failure of the bank, not the payment service, which is typically regulated at the state level and not subject to federal supervision. Most state regulation was designed for money transfer, not storage.

Thus, funds held by PayPal or Venmo in their program banks may be eligible for pass-through insurance, but funds that have been invested by the providers are not eligible. Customers may not know where their deposits are stored.

Mobile payment services are increasingly enabling crypto asset transactions. Crypto assets are not insured, although services like PayPal and Venmo allow customers to hold crypto in their accounts.

The Financial Technology Association responded to the report with a statement provided to Cointelegraph saying, "Tens of millions of American consumers and small businesses rely on payment apps to better spend, manage, and send their money. These accounts are safe and transparent, with users receiving FDIC Insurance on their accounts depending on the products they use. FTA members provide clear and easy-to-understand terms in all their products and prioritize consumer protection every step of the way.”

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