In a transaction, the single provider will reduce the funds in the account of the payer and increase the funds in the account of the receiver.

Under this model, both payer and receiver must have an account with the same provider to complete the payment. In closed loop systems, transactions are enabled through a single provider. In open loop systems, network rules bind the direct participation of banks, and transactions are sent in compliance with relevant network rules. A person with an account at one bank can send funds to a business that has an account at a different bank. There are also two types of payment systems: “open loop” and “closed loop.” Bank transfer systems operate as an open loop system where banks act as intermediaries between the end parties (payer and receiver) and the system, and transactions are enabled between accounts at different banks. Pull or debit payments are often used for recurring payments like bill pay. By contrast, pull transactions are initiated by the receiver, who instructs their bank to pull or withdraw funds from the payer's bank.

Examples of these types of payments include checks, wires, and payroll. There are two major payment types: “push” and “pull.” In push transactions, the payer initiates the payment, instructing their bank to debit funds from their account and send it to the receiver’s account. Payment systems vary by the network operating rules and guidance that define transaction processes. There are many ways to effectuate a payment, such as via cards (including credit, debit, and prepaid), ACH (Automated Clearing House), checks, wire transfers, and cash. Payments generally involve transfers of monetary value from a payer to a receiver, or payee. 5 The growth of payment apps to transfer funds and perform other services We find that stored funds can be at risk of loss in the event of financial distress or failure of the entity operating the nonbank payment platform, and often are not placed in an account at a bank or credit union and lack individual deposit insurance coverage. 4 While the primary purpose of these quickly growing platforms is to allow consumers and businesses to send and receive money, payment app companies offer an increasing array of services alongside this function, including the ability for consumers to store funds. This issue spotlight analyzes the extent to which popular payment apps, sometimes described as P2P payment platforms, claim to provide federal deposit insurance coverage to users through business arrangements with banks or credit unions. These events have spurred renewed attention on the varied types of financial institutions consumers use and the extent to which consumers’ funds at those financial institutions are protected from losses. 3 Additional concerns arise with the growth and attendant risks of non-traditional financial services platforms. 2 Following the demise this year of Silicon Valley Bank, Signature Bank, Silvergate Bank, and First Republic Bank, the public has learned more about the importance of federal deposit insurance coverage. In 2022, the collapse of crypto asset platforms FTX and Voyager led to significant harms to platform consumers who lost hundreds of millions of dollars, in addition to their crypto assets. There has been significant public attention paid recently to the safety and stability of stored funds, particularly when it comes to fast-growing financial firms. Indeed, the companies offering many of these widely used services have a strong financial incentive to encourage users to keep their funds stored rather than automatically sweeping them back into linked bank or credit union accounts. They are also storing billions of dollars through these services outside of their federally insured bank or credit union accounts. consumers and businesses are not simply using these services to transfer funds.

For example, total person-to-person (P2P) payment dollar volume quadrupled between 20. In recent years, transaction volumes on payment apps have substantially increased.

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