By Randy Hutchison
President of the BBB
Reprinted from The Jackson Sun
Since it was launched in 2017, Zelle has become the largest online peer-to-peer (P2P) money transfer platform. It’s owned by seven of the largest banks in the country and is offered to customers of more than 1,700 banks and credit unions. Consumers and businesses transferred $490 billion in 1.8 billion transactions through Zelle in 2021. It’s processed 5 billion transactions since its founding.
Zelle and competing apps like Venmo and Cash App are linked to a bank or credit card account and allow users to send money quickly to a recipient who is also enrolled in the service. Common uses include paying a friend for your share of a dinner bill, splitting rent and utilities, or paying a handyman for a service call.
But the ease of using the apps and, for the most part, inability to recover money once it’s sent have made the apps a “favorite of fraudsters” according to Senator Elizabeth Warren. She and seven of her colleagues sent letters last July to the CEOs of the banks that own Zelle expressing concern about what they called a widespread problem of fraud being perpetrated through Zelle. They asked the banks for detailed information about the number of reports of fraud from their customers and their policies for when they provide reimbursement.
The Senators said nearly 18 million Americans were defrauded through scams involving Zelle and other instant payment applications in 2020. They cited these examples of scams:
- A consumer bought concert tickets through Zelle, but once she sent the funds the seller stopped corresponding and never sent the tickets.
- A customer lost $500 to a scammer who claimed to be an employee of his bank and tricked him into transferring money to the scammer to resolve a supposed security problem.
- Customers’ phones were stolen and used to make unauthorized Zelle transfers.
The banks and Zelle refused to reimburse the customers, generally taking the position that the customer authorized the transaction despite being deceived into doing so (it’s not clear what the defense was in the case of the stolen phones). The Senators believe Zelle and the financial institutions offering the service should do more to protect their customers.
Early Warning Services, the company that operates Zelle, says it goes beyond the requirements of the Electronic Fund Transfer Act in providing refunds to customers. It also says reports of fraud and scams are inaccurate and that tens of millions of consumers safely use Zelle every day with more than 99.9 percent of payments sent without any report of fraud or scams.
Regardless of how much fraud occurs on P2P payment services, the BBB recommends you follow these tips from Zelle when using one:
- Remember that once you send a payment, you may not be able to get the money back if something goes wrong.
- Only send money to those you trust.
- Treat Zelle like cash.
- Confirm the recipient’s contact information.
- Understand your payment options. If you don’t know the recipient or aren’t sure you’ll get what you pay for, you may have more protection using a credit card.