Venmo's new user agreement may be a pain here (via Shutterstock).
Opinion,  Technology

Changes to Venmo in 2019 could lock you out of your eBay account

Venmo’s blue-sky vision of money crashes into PayPal’s existing problems

Venmo quietly announced changes to their popular free money transfer service over the new year. These changes come into effect on January 24, 2018 and could also come to affect your completely unconnected PayPal account.

According to the new user agreement—which you have to agree to to access money already in your account—Venmo “may set off any amounts you owe to us from other accounts you have with PayPal.” This means that can take your Venmo balance if you owe money to PayPal. That could mean that if you’re involved in an eBay purchase that goes sour on PayPal, it could affect your ability to pay a friend back for dinner.

Anyone with a U.S. phone number and an email account can accept money through Venmo without going through a lengthy identification process. However, under the new user agreement, if Venmo invites you to join their Venmo debit card system and you are not approved, they now have the right to take away your Venmo and PayPal accounts.

California civil rights attorney George S. Khoury explained that user agreements, even if harsh, are often considered legal and enforceable by the courts. On the phone with Modern Consensus on Wednesday, he compared the services to a local bank, “If you have a problem with your local bank, they’re not going to let you open another account at another branch across town. Why would Venmo do business with you if you have a negative account with PayPal?”

One of the most alarming changes is that even though a bank account is not required to receive money on Venmo, PayPal can now cancel both of your accounts and “[h]old your Venmo balance for up to 180 days if reasonably needed to protect against the risk of liability or if you have violated our Acceptable Use Policy.” Note that Venmo’s Acceptable Use Policy links to PayPal’s website. This includes a ban on purchasing “fraudulent goods” meaning that PayPal can take away your Venmo account just for buying fake Yeezy sneakers.

Let’s run through a couple of problems we have with Venmo’s new terms and how we could fix them, ideally with some blockchain workarounds.

First off, we like free cash transfer apps like Venmo, Ca$h, and PayPal’s peer-to-peer function because they hold crypto companies honest. Since crypto lacks most enterprise solutions, a fair amount of transactions could be better handled on a person-to-person basis in these common apps. If you send someone $50 in bitcoin, you would have to pay mining fees and they could run off with your money. If they tried that on Venmo, then at least you would have a number to call for a dispute.

PayPal is currently testing out a ridiculous-sounding blockchain token service internally. So far, it is only possible to buy experiences “like a morning run with the CFO or borrowing the head of investor relations’ dog for a day.” Sounds like a blast.

Internal token systems like that should be more common in small communities because they have a fair claim to revoke service. If you get fired from PayPal, it makes sense that you can’t turn in your chips for a new desk chair. But outside of that, the threat of account removal echoes a discussion going on at other digital platforms. If you need these platforms to find and apply for a job, then getting banned from them could mean getting banned from getting a job. That has even harsher ramifications for banking.

But there is a major problem. PayPal markets Venmo as a way to save you a trip to the ATM and pay your trusted friend network back. Meanwhile they market PayPal as a way to complete commercial transactions with trusted merchants. Banning you from both services because you have a problem with one of them had serious social consequences.

Canadian psychologist and guy-I’d-never-what-to-be-stuck-in-an-elevator-with Jordan Peterson put it this way when YouTube started banning users:

So what is PayPal supposed to do with their problem accounts?

The new user Agreement does allow for arbitration for users with cancelled accounts. “I would wonder what a company would do if a person demanded arbitration over a $200 account,” George Khoury said. “They would probably issue a check. Then the user could pay a check cashing station and get their money out. But there’s an avenue.”

There is also a huge problem when your “agreement” requires 60 pages of reading.

A lot of disruptive tech startups want you to believe they are the fastest, breeziest way to do X. In this case, Venmo wants you to believe they are the quickest way to send money to friends and merchants. But in order to get into this fast, breezy service, you have to swear on your life that you read their entire user agreement. Which pretty much nobody does. You also agree to keep abreast of all changes to the user agreement before completing any transaction. The new agreement clocks in at 13,288 words. That’s about an hour of solid reading, coincidentally the length of your average Kafka short story.

So is Venmo really quicker than a trip to the ATM if your first transaction is two days of homework for a typical the average AP English student?

Venmo loves to tell people how much they love immigrants. “Venmo welcomes immigrants. They bring unique insight to our company because of their diverse experiences,” Zimbabwe-born Venmo co-founder Iqram Magdon-Ismail told Fast Company.

Venmo does not require a U.S. bank account, but you have to physically be in the United States to use it and have a U.S. cell phone. So let’s say you are an immigrant or foreign exchange student and you answered an ad to debug someone’s code for $100. They offer to pay you in Venmo. This is great for you because even though you don’t have a U.S. bank account, you can now go on eBay and buy that new Raspberry Pi computer you wanted for your startup and seamlessly pay for it using Venmo.

Now you’re a part of the U.S. digital economy. You can establish a good client base, get reviews, and buy a domain name for your business. (It’s hard to buy a domain name with cash.) When everyone else pulls out their credit card at dinner, you can just say, “I’ll Venmo you.” Venmo likes having you as a customer and you never do any chargebacks. Now you get asked to sign up for their Mastercard. This is great for you because now you can get cash out of an ATM. But you better read that user agreement carefully (note: it is only available in English). Because they deny you the Venmo debit card, they also take away your Venmo account, your PayPal account, and all the money in both.

“To use money sent to you for Venmo payments to other users or authorized merchants, we must verify the required identifying information you provide to us,” the new user agreement stipulates. So even though you only need a phone number and an email to receive money from Venmo, they reserve the right to freeze your account if they can’t later verify your “name, physical address, date of birth, and social security or taxpayer identification number.”

The problem here is that a unverified casual user who sends and receives $100 over the course of a year looks just like a money launderer to many auditors. “These tech startups always start off shaky and as they move up in the ranks, they start talking to more sophisticated lawyers they learn how to protect themselves from crimes that don’t always come up from the beginning,” Khoury said. “Once money is involved, the criminal element gets involved if the platform is exploitable. Fraud is a big issue through eBay and therefore PayPal, so it makes sense that they would move to avoid that with Venmo.”

The slight “problem” with fee-free transactions is that high fee transactions, like with your membership-based American Express card, come with perks like purchase protection. Currently if you use Venmo to purchase something and it does work out they guide you to how to make the dispute through your bank, not through them.

But with more and more of the economy using Venmo and Paypal, getting locked out of your account means being denied access to basic services that the digital economy requires. Imagine being a foreign exchange student in the US without the ability to buy cheaper used items on Ebay through PayPal or to pay a friend back for a six-pack on Venmo.

With Facebook and Google getting summoned to appear before Congress in 2018, 2019 could be the year of reckoning for ambiguous user agreements. These aren’t scrappy little startups learning as they go anymore. These are billion dollar brands that only grow in value as they grow their number of daily active users. And if every action requires compliance with their user agreement then it is time for users to be clear on what they actually agree with.

Before it gets better in the U.S., we need to move to banking standards like they have had in Canada and the UK for decades. There is no Venmo in Canada because for the last 15 years, the handful of banks that exist in Canada agreed to offer free transactions on their own homegrown peer-to-peer system known as Interac. The UK standard is instant and works around the clock. In the U.S., our high-fee transactions still only go through during regular business hours.

Until then, scrappier enterprises might need to take a cue from Venmo and level-up. “When people have their side businesses turn into real businesses they need to upgrade. They need to stop relying on PayPal and Venmo and do things the traditional way. And that might mean getting a Square account,” Khoury said with a chuckle. “All these apps are so easy, but so are the mainstream services you can get today.”

The problem for now is that PayPal and Venmo are beyond mainstream. They are so ubiquitous that getting locked out of both for a violation with just one can mean getting locked out of the social digital economy. We are still a long way from real digital money and consolidating two of the most popular services only helps their parent company, not the users.

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Post Script: PayPal co-founder Elon Musk went off on a long tangent with the still-unsolved problem of digital money to his biographer. Note that fintech startups like Robinhood and Venmo are just not getting to features like money market accounts and debit cards that Musk had made a standard on PayPal even before the eBay acquisition.

“None of these start-ups understand the objective. The objective should be—what delivers fundamental value. I think it’s important to look at things from a standpoint of what is actually the best thing for the economy. If people can conduct their transactions quickly and securely that’s better for them. If it’s simpler to conduct their financial life it’s better for them. So, if all your financial affairs are seamlessly integrated one place it’s very easy to do transactions and the fees associated with transactions are low. These are all good things. Why aren’t they doing this? It’s mad.”

Excerpt From: Ashlee Vance. “Elon Musk: Tesla, SpaceX, and the Quest for a Fantastic Future.”

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Brendan Sullivan is a writer, producer, and author of the memoir Rivington Was Ours: Lady Gaga, the Lower East Side, and the Prime of Our Lives. Disclosure: he owns cryptocurrencies. Follow him on Twitter.