Bank-owned Zelle network has lower share of disputed transactions, including alleged fraud, compared to other P2P payment apps
Washington, D.C. – Zelle, the bank-owned peer-to-peer payment platform, has a lower share of disputed transactions than its nonbank P2P competitors such as PayPal, Venmo and Cash App. Disputed transactions, including allegations of fraud, make up 0.06% of Zelle transactions on average, based on 2022 survey data from eight of the largest U.S. consumer banks. This share is the lowest across the major P2P payments platforms, contrary to misconceptions circulated in some media reports. For this purpose, a “disputed transaction” is one in which the bank’s customer contacts the bank to claim the P2P transaction was fraudulent or unauthorized during the first half of 2022.
- The share of disputed transactions made using PayPal is 3x higher than those on Zelle.
- The share made via Cash App is 6x higher relative to Zelle.
“Banks know their customers, and this data should come as no surprise to anyone familiar with banks’ rigorous security standards and screening processes,” said BPI CEO Greg Baer. “Banks provide the safest route for moving money from point A to point B without sacrificing speed and convenience. This data reaffirms why customers trust banks to protect them from fraud.”
How banks keep payments safe: Zelle requires that customers already have a bank account, so banks’ know-your-customer requirements apply. In contrast, apps like Cash App allow customers to set up accounts without going through all the screening processes that banks deploy. Nonbank apps make it easier for fraudsters to set up accounts that look like legitimate sellers or merchants.
- Banks are also more likely to kick fraudsters off the Zelle network. Banks report incidents of suspected fraud into the Zelle network and other banks can make use of that information.
- Banks have no direct link to third-party customers of nonbank P2P apps, so they have no effective way to report fraud incidents to a nonbank P2P platform or ensure that information is shared with other banks.
As a result, bank customers express high rates of satisfaction with their banks’ handling of fraud. According to a Morning Consult survey conducted in August, almost 9 out of 10 adults who have been victims of fraud were satisfied with their bank’s response (89%).
What could be done? The primary focus of policymakers should be to reduce fraud, not to reallocate the resulting losses while fraudsters keep their gains. To mitigate fraud risk among nonbank payment platforms, regulators should reduce fraud by subjecting firms like data aggregators that store and use consumer financial data to more stringent data security and consumer privacy protections consistent with those applicable to banks. Federal regulators should work together to crack down on phone “spoofing,” in which fraudsters trick consumers by making calls appear to be from a legitimate institution like a bank or government agency. Customers are understandably fooled when a telephone call shows that the caller is their bank, but banks are powerless to prevent this trick; it is up to the federal authorities and the telecommunications companies to do so. Lastly, regulators should coordinate with law enforcement and other government agencies, community groups and the industry to root out criminals exploiting these platforms for fraud.
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.