Zelle Fraud
Everybody’s looking for newer, faster, and more convenient ways to make payments, and there are a lot of financial service providers eager to hook them up. Consumers don’t want to sort through a long list of payment instruments to find the right one for the type of purchase they’re making, they want digital payments to be as easy as cash.
Fund transfer services have become increasingly popular for this reason, and Zelle is one of the most widely-used apps. Unfortunately, popular payment platforms attract fraudsters, and that leads to payment disputes. How is Zelle impacted by scams, fraud, and chargebacks?
- What is Zelle and How Does It Work?
- What Does Zelle Fraud Look Like?
- How Do Zelle Chargebacks Work?
- Conclusion
Zelle is fast becoming one of the most widely-used services for peer-to-peer fund transfers. With more than 60 million users, it’s second only to Venmo in terms of adoption in the US.
One reason for this is the fact that Zelle works directly with banks and credit unions to make their service more accessible to consumers who don’t necessarily want to download and use third-party apps.
One rule fraudsters live by is that they always follow the money. When a new service or platform takes off, fraudsters always target it. They’re hoping to take advantage of the fact that the platform is novel and unfamiliar to a lot of users, and they may not immediately recognize when they’re being scammed.
Plus, the platform may not yet have developed mature technological defenses against various forms of attack. Zelle has been around since 2017, but compared to payment systems like credit cards, it’s still in its infancy—and therefore vulnerable to fraud.
Wherever fraud shows up, payment disputes will follow, and those too can be unpredictable and difficult to manage when the platform itself is still figuring out how to handle them. With consumers showing increasing interest in using peer-to-peer platforms like Zelle for retail payments, it’s important for merchants to educate themselves about Zelle fraud and chargebacks.
What is Zelle and How Does It Work?
Zelle is a service that allows users to send funds to somebody else’s bank account, even if they bank with a different financial institution.
Unlike similar platforms such as Venmo and Cash App, Zelle doesn’t necessarily require users to use their own proprietary app. Zelle has partnered with about 1,700 different banks and credit unions that offer Zelle’s fund transfer services within their own banking apps, granting customers of those institutions access to Zelle’s services without having to maintain a separate account with a third-party provider.
This accessibility makes it easy and convenient for consumers to use Zelle, but it also increases the reach of fraudsters and scammers.
What Does Zelle Fraud Look Like?
On platforms like Zelle, “fraud” usually refers to one of two things: account takeover attacks, and third-party scams. The first type is reportedly not widespread on Zelle, but scams are prevalent—and they’re not always easy to track.
The first type of fraud has to do with cybercriminals gaining access to a bank account or Zelle user credentials, and using them to place unauthorized transactions with the victim’s funds.
Because Zelle is a peer-to-peer fund transfer service, a fraudster with access to a Zelle account can potentially send money directly from the victim’s account to their own, as much and as often as Zelle’s transfer limits allow. In accordance with the Electronic Funds Transfer Act, financial institutions may be required to return the victim’s money when unauthorized payments of this type are made.
Scams, on the other hand, can be trickier to deal with. Acts of Zelle fraud are referred to as scams when the victim willingly authorizes a payment to a fraudster under false pretenses.
An example of a scam would be when a fraudster offers concert tickets for sale on an online marketplace. The victim pays for the tickets, goes to the venue, and finds out the tickets are fake. Scams can also involve fake charities, threats of legal action, or debt consolidation offers.
Scammers often prey on people’s emotions by pretending to be romantically interested in the victim, or impersonating their family members. Another common scam is money mule recruitment, in which the victim helps launder the scammer’s money in exchange for a small percentage.
As things stand, victims of scammers can’t always get their money back from Zelle or similar platforms, because in most cases they did, in fact, authorize the payment to the scammer.
How Do Zelle Chargebacks Work?
Zelle does not have a chargebacks in the same way that credit cards do. Zelle users have the ability to cancel pending transactions, but once they go through, their dispute rights are limited.
When users discover that an unauthorized transaction has posted to their account, Zelle instructs them to contact their financial institution (if they use Zelle through though them) or Zelle directly (if they use the Zelle app). Assuming the transaction meets the criteria outlined in the EFT Act, they should be able to get their money back.
Scams are a different story. There’s no formal dispute process for dealing with Zelle scams, but some banks are looking to change that.
Due to the high rate of fraud that takes place over the platform, three of the largest banks—Bank of America, JPMorgan Chase, and Wells Fargo—are looking into the possibility of creating dispute and refund rules for users who have been scammed.
A number of financial institutions have an ownership stake in Zelle’s parent company, and they have a vested interest in strengthening securing and improving consumer trust in the platform. Industry analysts believe the new rules for Zelle disputes might be introduced in 2023.
Conclusion
Nothing is stopping most merchants from accepting Zelle as a form of payment, and the low cost and current lack of a chargeback process may make it seem quite appealing.
The thing to keep in mind is that without a way to dispute payments, consumers have little in the way of fraud protection, which can lead to contentious disputes, loss of trust, and reputational damage.
Without an objective way to adjudicate them, disputes can turn into a consumer versus merchant battle, even when the instigator was a fraudster who’s already run off with their stolen goods.
This status quo may change when the big banks get their way, but then it will be up to merchants to determine whether or not any new dispute rules are fair and reasonable. It’s good to be open-minded about new payment methods, but protecting your revenue should always be a priority.
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