Get All Access for $5/mo

Pyramid Schemes Are Targeting Snapchat's Mostly Teen Users Screenshots circulating on the platform may be giving some users a run for their money.

By Lydia Belanger

Opinions expressed by Entrepreneur contributors are their own.

Hero Images | Getty Images

Most people understand the basics of pyramid schemes: participants recruit new investors, ad infinitum, but since there aren't an infinite number of people willing to join, eventually, someone will lose out. When you add the layer of social media between participants, which enables anonymity and fosters a potential sense of false trust, the terrible consequences of these scams are heightened.

That's why it's troubling to see screenshots taken from Snapchat and other social networks (like the one below) circulating online, outlining what appear to be pyramid schemes framed as "crowdfunding" or "money pools," many promising that there are "no scams" involved.

The defining feature of these campaigns, if you will, is that they lure new participants to send a sum of money to someone via Snap's peer-to-peer payment service, Snapcash, or via another service such as Venmo. From there, that individual purportedly enters into a hierarchy through which the process repeats itself: That individual recruits more people to pay in and reaps the profits from everyone nested under them.

Related: John Oliver: Multilevel Marketing Is Not a Good Path to Entrepreneurship

The difference between the legal, but shady, practice of multi-level marketing and illegal pyramid schemes is that the latter depend on recruitment to sustain themselves, while multi-level marketing is based on the idea that value comes from product sales by participants.

Indicators of this type of activity on Snapchat have been shared by users on third-party sites such as Reddit and Facebook, as the The Outline reports. Snapchat is a more private social environment where users tend to share images and videos in closed networks -- for a maximum of 24 hours before they disappear. From the screenshots that have surfaced, it seems those making the rounds on Snapchat involve only the exchange of money, not products or services.

Similar potential scams have made the rounds in recent weeks, including a "gift exchange" pyramid scheme pegged to the holiday season. The Better Business Bureau issued a warning about this along with tips to keep people safe from being defrauded -- mainly, be skeptical, and report anything suspicious.

The big question is whether Snapchat's chiefly young, heavily gen Z user base is savvy enough to sniff out shady schemes on a platform known for the exchange of intimate content among friends.

It's difficult to tell the extent to which Snapchat users are actually participating in these schemes, vs. simply sharing information about them. Entrepreneur has reached out to Snap, Inc. for comment and will update this story if it responds.

Related: Scam or Superior Product? How One Entrepreneur Dealt With Scandal After Early Success.

Lydia Belanger is a former associate editor at Entrepreneur. Follow her on Twitter: @LydiaBelanger.

Want to be an Entrepreneur Leadership Network contributor? Apply now to join.

Editor's Pick

Leadership

How to Spot the Perfect Executive for Your Company

Hiring senior talent to run a team is a crucial moment in the story and trajectory of a company. Whether you need to hire senior talent now or are looking to gather insights for the future, it's important to be prepared for a gap in a crucial leadership position.

Business News

How to Be a Billionaire By 25, According to a College Dropout Turned CEO Worth $1.6 Billion

Austin Russell became the world's youngest self-made billionaire in 2020 at age 25.

Growing a Business

How a Local Greek Restaurant Seized Opportunities and Won a New Food Network Competition

After starting as a food truck in 2014, Think Greek has evolved into an award-winning restaurant by creating innovative menu items and taking advantage of opportunities that extend its audience reach.

Starting a Business

Your Business Will Never Succeed If You Overlook This Key Step

A comprehensive guide for startups to achieve and maintain product-market fit through thorough market research, iterative product development and strategic scaling while prioritizing customer feedback and agility.

Side Hustle

This Former Disney Princess Lived 'Paycheck to Paycheck' Before Starting a Side Hustle at Home — Now She Makes $250,000 a Year

Victoria Carroll's income was "sporadic" until a friend encouraged her to take her talents to Fiverr in 2018.

Business Ideas

63 Small Business Ideas to Start in 2024

We put together a list of the best, most profitable small business ideas for entrepreneurs to pursue in 2024.