MOORESVILLE, Ind. — More than half of American consumers use an app to transfer money to their friends and family or buy goods and services. As we’ve reported in the past, the method is simple and fast but the convenience can cost you.

Johnny Schaefer knows this all too well. He thought he was paying $943 to a person he knew via Cash App, which is a peer-to-peer payment app linked to a bank account.

Schaefer said he typed in the person’s nickname as he has it saved in his contact list.

“Well, instead of pulling from my address book as it had before, as Venmo, as any PayPal, any other, they in a sense pulled a complete stranger off the platform and sent him the money,” Schaefer explained.

Schaefer said he realized his error in seconds and reached out to Cash App.

“They were like no, no dice,” Schaefer said. “You can ask this person for a refund.”

The stranger did not refund the money and instead blocked him. So, he reached out to Chime.

Chime is not a bank but rather a financial tech company.

“They’re basically being used as a deposit account and they’re not a deposit account,” Rachel Gittleman, Financial Services Outreach Manager with the Consumer Federation of America, said. “There’s no insurance.”

Consumer experts explain Chime and other nonbanks and neobanks as they’re called are essentially third-party providers partnering with a bank. But, experts said they are riskier than a federally insured institution.

“There’s just, there’s no recourse right, as you would have with a bank,” Gittleman said.

Chime provided the following statement:

“Chime partners with two community banks to deliver fully regulated financial products.

Chime’s bank partnership model allows us to offer products that are fully regulated and offer important consumer protections, including member deposit accounts that are held at our partner banks and fully FDIC insured.”

Chime

According to Schaefer’s claim, Chime determined there wasn’t an error because he has spent similar amounts of money using his account and he was still using the account when the incident happened.

Schaefer discovered that the hard way after disputing his transaction with Chime. According to Schaefer’s claim, Chime determined there wasn’t an error because he’s spent similar amounts of money using his account and he was still using the account when the incident happened.

“Initially they gave me a credit and said we’ll look into it but then unfortunately they denied it,” Schaefer said.

Now he hopes others will learn from his experience.

“I would definitely reach out to your contact and verify that you have the right handle, the hashtag or the dollar sign or whatever it is, phone number and email address and that they are still using that platform,” Schaefer said.

Gittleman advises anyone using peer-to-peer payment apps to pause before sending money to make sure they are sending money to the person they intend it for. Also, if you are scammed or defrauded, you should share your experience with the Indiana Attorney General’s Office.