Dive Brief:

• U.S. servicemembers are increasingly grappling with digital payment app trouble, mainly scams and fraud, according to a Consumer Financial Protection Bureau report this week that pegs it as a fast-growing concern.
• The CFPB highlighted those complaints in its annual report on military families’ top financial concerns, saying in a Tuesday press release that the number of such complaints jumped 76% to 1,118 complaints last year, relative to 2020 when 636 complaints were lodged. Those payment tools include PayPal, and its Venmo app, the Zelle app from Early Warning Services and Block’s Cash App, the report said.
• There is a higher concentration of complaints with regard to digital apps among servicemember families (2.2%) than in the general population (1.5%), the report said.

Dive Insight:

It’s not just servicemembers that have embraced digital payment tools. The annual CFPB report cited other studies, from the Federal Reserve and Pew Research Center, showing the general adoption of digital payment apps in the U.S., with 66% to 76% of adults adopting one app or another in recent years.

Increased use of the apps has made it easier for bad actors to find their victims and trick them into sending money, the report noted. That’s true for all consumers, and fraud generally has increased in the payments industry in recent years.

Nonetheless, the CFPB this year flagged military personnel and their families as being more susceptible to digital payment scams, partly because they’re more often making payments for expenses related to moves from one locale to another. They’re also more likely to be the victims of identity theft due to more sharing of personal information during deployments.

Servicemembers may also have difficulty monitoring their credit reports and digital transactions when they’re posted in places with limited or no cellular reception. 

The most common complaint among the servicemembers is about fraud or scams, with those issues accounting for just over half of the complaints, the CFPB said. The agency cited data it has regarding complaints to companies about payments, including those lodged by servicemembers.

“As more servicemembers use payment apps as a means of transferring money, they are increasingly experiencing financial loss and harm,” the report said.

The CFPB report also cited an AARP study that said military members were generally more likely than civilians to lose money in frauds, and that they are often targeted in ways that relate to their benefits or service.

Just under half of servicemembers’ complaints were with respect to apps associated with money transfer services or virtual currencies, while about a third were tied to checking or savings accounts. Smaller percentages were linked to credit or prepaid cards.

One servicemember cited in the report lost $24,000 from a checking account and $9,500 through a payment app service that wasn’t identified.

“Some servicemembers have also indicated in their complaints about incurring serious financial harm from scams and fraud when using these services, and their complaints suggest digital payment app providers often fail to provide timely and substantive resolutions,” the CFPB release said.

The agency noted the dire consequences the situation can have not only for the servicemember, whose financial health and security clearance can be compromised, but also for the country.

“When a servicemember is put into a situation that hurts their financial readiness, such as a substantial loss as the result of fraud, it can ultimately jeopardize their ability to protect our nation and their main source of income to provide for their families,” the report noted.

About 58% of the complaints reviewed by the CFPB were from veteran and retired military families, while only 9% were from active duty families and about 4% from the National Guard or reserves (most of the other complaints didn’t list the category). 

To improve the situation, the agency recommended payment app providers upgrade the security of their networks, step up responsiveness when fraud occurs and better tailor their reimbursement policies to servicemember needs.