Venmo Scams: How to Sell and Buy Safely

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Venmo Scams: How to Sell and Buy Safely

Ben thought nothing of selling his iPhone to an interested buyer on Craigslist, using Venmo to process the transaction. The buyer agreed to Venmo the money and meet in person to pick up the phone. But once Ben received the deposit in his Venmo account, the buyer had a change of heart. He wanted Ben to mail him the phone instead.

It’s how Venmo scams start: Unscrupulous buyers seemingly “pay” for goods, collect the item then reverse payment before the seller realizes they’ve been scammed.

Is Venmo safe?

Venmo is often considered a fast and easy way to send a friend or family member money. That’s what the peer-to-peer financial platform is intended for, which is something the company emphasizes. According to Venmo’s user agreement, the service should only be used among people who know each other or to pay authorized merchants. If you follow those guidelines, the service is likely to be as safe as any other lending, banking or money-management app.

However, trouble arises when you attempt to do business with people you don’t know over Venmo. In Ben’s case, he avoided a potential scam by telling the con artist he would only ship the phone after transferring the funds from Venmo to his checking account and confirming the funds were received.

Others aren’t so lucky. Fraud is a growing issue on Venmo, as the company recorded an operating loss of about $40 million in the first quarter of 2018—largely a result of fraudulent transactions.

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How does Venmo work?

Venmo allows individuals to send money from their bank account or credit card and also receive money that can be transferred into their bank account. After downloading the app, users provide personal information and preferred payment methods. Then, they can send money to someone using an email address or Venmo username, or use Venmo to pay authorized online merchants for goods.

The mobile payment company, which is owned by PayPal, also incorporates a social element. Users can post publicly about the reasons they’re sending money to friends, which has turned into a steady stream of funny Venmo messages.

It’s free to send money from a linked bank account, debit card or Venmo balance; to receive or withdraw money from a Venmo account; or use a standard transfer to move money into your bank account. However, you’ll pay a 3% fee when sending funds that are financed by a credit card and a 1% fee to instantly move money to your account.

There are some key differences between Venmo and PayPal. A user can reverse a transaction once it’s initiated on Venmo, which is a loophole some scam artists have exploited. In fact, the Federal Trade Commission brought legal charges against the company for not disclosing that fact to its customers. And unlike PayPal, there is no buyer or seller protection on Venmo, which means you’re on your own if you’ve shipped an item but your buyer doesn’t pay.

Selling with Venmo

If you’re selling an item, Venmo can easily help you complete the transaction. You’ll ask the buyer to send money through the app once you’ve agreed on a price, then transfer the funds into your bank account. Be careful here: The buyer can reverse the transaction until you transfer the funds.

If you want to accept Venmo payments from someone you don’t know, you can become an “authorized merchant” with Venmo, which means you accept Venmo as a payment method for items you sell.

Buying with Venmo

When it comes to buying with Venmo, you’ll initiate a withdrawal from your bank account or credit card by sending money to the seller. The money will come out of your account when the seller transfers it into their account.

You can also buy things online from authorized merchants using Venmo. Purchases you make from an authorized merchant may be covered under Venmo’s Protected Purchase program, which allows you to get a full refund for problematic transactions.

How Venmo scams work

It’s easy for Venmo scammers to look legitimate at first. They’ll agree to purchase an item and will send money to your Venmo account. After you send the item to the buyer, they’ll reverse the transaction and close their bank account or credit card. You’re left with no money, and the fraudster has the item you sent.

Apple co-founder Steve Wozniak famously tried to sell around $70,000 worth of bitcoins using Venmo, but the buyer canceled the credit card he used to make the purchase before Wozniak got the money out of Venmo. The lesson: Even tech multimillionaires aren’t immune to Venmo scams.

What to do if someone scams you on Venmo

There may not be a lot you can do recoup your losses if you’ve been scammed on Venmo, but that’s not to say you shouldn’t at least take these steps.

  • Contact the buyer to let them know the transaction didn’t go through, in case it was an honest mistake.
  • Contact Venmo to dispute the charge. Venmo’s terms of service strongly states you should not use the app to transact with people you don’t know, which is the case with most scams, so it’s possible Venmo will be unwilling or unable to help you. However, it doesn’t hurt to plead your case.
  • If you’ve communicated with the individual and provided personal identifying information, such as bank account details, contact your bank immediately to let them know your information may have been compromised.

How to protect yourself

To guard against Venmo scams, follow the company’s advice to avoid transacting with individuals you don’t know. If you still want to buy and sell on Venmo with strangers, there are a few things you can do to try and ensure the transaction doesn’t backfire:

  • Don’t ship the item you are selling until you have successfully transferred the money from your Venmo account into your bank account.
  • Research the person who wants to buy your item. You can use a background check service to potentially help you determine whether the individual is trustworthy.

Alternatives to Venmo

There are other methods for buying and selling with people you don’t know.

Cash

  • Pro: This is a very reliable way of making sure you get paid for what you’re selling.
  • Con: Dealing in cash requires meeting the buyer in person. Also, it may not be feasible for large transactions, such as Wozniak’s $70,000 worth of bitcoins.

Personal check

  • Pro: This is a familiar and straightforward way to receive money from a stranger.
  • Con: You need to wait until the check clears and that you’ve verified the transaction hasn’t been canceled and the funds withdrawn from your account before sending off your item.

PayPal

  • Pro: PayPal doesn’t have the same transaction-reversal loophole as Venmo.
  • Con: No major ones for using PayPal for this purpose.

Money order

  • Pro: This is equivalent to sending cash through the mail.
  • Con: There is typically a $1,000 limit for money orders, and you have to pay a fee for each one.

Bank transfer

  • Pro: This is a reliable method of getting money into your account.
  • Con: You shouldn’t give your bank information to anyone you don’t know, which prevents you from using this method with some of your buyers.

The bottom line

There’s no way around the fact that Venmo “relies on trust,” said Joe Mancini, vice president of information security for Radius Bank. “You’re trusting whoever you’re sending money to.”

If you don’t know enough about the Venmo buyer or seller or see red flags at any point, walk away. Or better yet, simply reserve Venmo for what it was intended: sharing your financial life with your family and friends.

Disclaimer: The above is solely intended for informational purposes and in no way constitutes legal advice or specific recommendations.

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