Online Fraud Is Real, But Zelle is a Safe Harbor, Not the Problem

Washington, D.C. – Payments fraud received significant attention at the recent congressional hearings featuring the seven largest retail banks. The focus was on Zelle because the witnesses were bank CEOs but, for any real discussion of online fraud, the focus belongs elsewhere.

Contrary to some recent accusations:

  • Zelle is the safest peer-to-peer network.
    • The share of disputed transactions made using PayPal is 3x higher than Zelle. For Cash App, it’s 6x higher.
    • Since 2017, two-thirds of complaints submitted to the CFPB about peer-to-peer payment services have been about Venmo, Cash App and Coinbase Global.
  • Banks do not profit from Zelle. The service is generally free to consumers.
  • Banks fully reimburse customers for unauthorized transfers. When a customer reports a fraudulent or unauthorized electronic transfer, meaning someone else initiated the transaction, banks reimburse the customer for the full value of the payment, as required by law.
  • In some instances, banks also reimburse authorized transfers when a customer is tricked into initiating the transaction. Banks do so even when there is no way to know the customer had been tricked.
  • Banks work hard to protect customers from fraud. Zelle employs advanced measures to protect and educate consumers: system monitoring, information sharing between banks, real-time notification systems to alert suspected victims and proactive preventative measures to preempt potential bad actors. Banks run educational campaigns and have security layers in place to encourage customers to remain alert when conducting electronic transactions.
  • Fintechs do nothing of the sort. While banks alert each other to fraud on the Zelle network, fintechs keep that information to themselves. These efforts pose an obstacle for banks to recover the money, close the bad account or determine where the money went once it left the bank.
  • Customers are overwhelmingly satisfied with the support received from their banks. Almost 9 out of 10 adults who have been victims of fraud were satisfied with their bank’s response (89%), according to a recent Morning Consult survey.
  • The story was the same with the Paycheck Protection Program and other COVID-19 relief efforts.
    • Fintech loans were 3.2x to 6.5x more likely to be involved with potentially fraudulent PPP loans compared to those offered by traditional banks.
    • The top 10 lenders with the most suspicious loans were all fintechs.
    • BPI analysis found that about three of every four cases of alleged PPP fraud had some fintech involvement.

What more can be done?

Congress and the federal agencies should:

  • Provide resources for law enforcement so that more crimes related to fraud and scams can be investigated and prosecuted.
  • Invest in additional coordinated public outreach to educate consumers on identifying common fraud and scam tactics used by criminals, and how to avoid becoming victims.
  • Subject data aggregators that store consumer financial data to more stringent data security and consumer privacy protections, consistent with those applied to banks.
  • Adopt strategies to eliminate screen scraping and incentivize the migration to safer ways to share data, such as through application programming interfaces (aka APIs).
  • Crack down on phone “spoofing,” in which fraudsters trick consumers by making calls appearing to be from a legitimate institution like a bank or government agency.
  • Collaborate with industry to identify vulnerabilities and threats outside of the banking sector that may be facilitating instances of fraud or scams.

Additional Resources:


About Bank Policy Institute.

The Bank Policy Institute (BPI) is a nonpartisan public policy, research and advocacy group, representing the nation’s leading banks and their customers. Our members include universal banks, regional banks and the major foreign banks doing business in the United States. Collectively, they employ almost 2 million Americans, make nearly half of the nation’s small business loans, and are an engine for financial innovation and economic growth.

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