Can Zelle change the narrative around P2P fraud?

Zelle has become a victim of its own success. As the peer-to-peer payments service’s popularity booms, stories about fraud and scams that target Zelle users have grown rapidly with it.

Fraud associated with the bank-owned Zelle network stood out in the Consumer Financial Protection Bureau’s review of payment platforms last fall, and a new wave of Zelle scams accelerated this year.

The New York Times recently documented several case studies where frustrated victims were unable to recoup lost funds from their banks, which argued that consumers had authorized the transfers.

Now Early Warning Services, Zelle's operator, is working to change the narrative. Although Zelle has prominently warned users since its launch to only send funds to people they know, Zelle is escalating its consumer-education efforts with new ads that aim to protect users.

Nev Schulman, host of MTV’s "Catfish" and author of a book about online dating risks, appears in a series of public-service videos Zelle is airing this week on TikTok and Instagram with tips on “how to avoid getting robbed.”

Zelle is also sponsoring a webinar on Wednesday with panelists from Match.com and the Cybercrime Support Network describing red flags signaling P2P fraud and romance scams and how to avoid them.

Max Joseph and Nev Schulman, MTV's Catfish
Max Joseph (left) and Nev Schulman, hosts of MTV's Catfish. “During the pandemic ... many people found themselves longing for the social and emotional interaction they had lost during quarantine," said Schulman, who appears in videos warning Zelle users about romance scams.

The pandemic’s broad shift to digital payments exacerbated fraud overall — romance scams alone have tripled in the last five years.

“Two things happened during the pandemic that made romance scams skyrocket. Many people found themselves longing for the social and emotional interaction they had lost during quarantine, and lots of people lost their jobs and found themselves at home looking for a way to make money,” Schulman said in a written statement.

In different vignettes, Schulman explains how Zelle users are duped into sending money to fraudsters who claim to have misdirected funds into victims' accounts, or who pretend to be bank representatives. Scams from fraudsters pretending to represent utilities are also a growing menace.

The total number of scams is hard to measure, because many consumers who recognize they were duped don’t report the incidents. But consumer frustration is rising, especially because in many cases banks refuse to refund money lost in scams. The banks say they are not liable because the customer authorized the payments.

One reason Zelle has become a fraud vector is its sheer volume. Last year Zelle drove $490 billion in transactions, more than double Venmo’s $230 billion P2P volume in 2021.

Zelle counters that its proportion of fraudulent transactions is declining as banks’ fraud-detection technology improves against ever-evolving threats.

“Protecting our users from fraud and scams has always been a top priority for Zelle and as a result of our consumer safety campaign we’ve seen overall scam losses fall,” Zelle said in a written statement. In 2021, fraudulent transactions on Zelle declined by 8 basis points while overall transaction volume increased by 49%, according to Zelle.

One of the challenges in battling P2P fraud is that technology can only go so far when victims are tricked into aiding the scammer.

“With romance scams, the weakest link is the consumer. Merchants, banks and all other players in the payments ecosystem have solidified their defenses enough that the path of least resistance is now the end user,” said Marc Trepanier, principal fraud consultant at ACI Worldwide, which offers fraud-detection software to banks and merchants.

In the U.K., where real-time payments, account-to-account transfers and P2P services are more mature, the number of romance scams rose 38% in 2021 compared to 2020, according to Trepanier.

“As real-time payments take hold in the U.S. with Zelle and the upcoming FedNow system" — which is expected to launch in 2023 — "the banking industry must take note and learn from the successes and challenges of their neighbors across the pond,” Trepanier said.

Technology is getting better at helping banks exchange fraud data in real time, using machine-learning algorithms to spot suspicious transactions, according to Trepanier.

“Dating apps and social media also have a place in the collective fight to stop criminals by blocking users who have repeatedly been flagged as fraudulent,” he said.

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Payments Cyber security P-to-P payments
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