The news: Consumers lost an estimated $440 million in 2021 from peer-to-peer (P2P) payments fraud and scams on Zelle—and in most cases, banks failed to reimburse victims, according to a report by the office of Sen. Elizabeth Warren (D-MA).
Zelle owner Early Warning Services countered in a statement that while Zelle use has increased, the proportion of fraud and scams has steadily decreased in recent years.
Key context: Early Warning Services, which is owned by seven of the largest US banks, classifies fraudulent activity into two buckets: fraud and scams. Fraud is when someone gains unauthorized access to a user's account to send money to themselves, and scams are when users are tricked into sending money to a bad actor—otherwise known as authorized push payments (APP) fraud.
Zelle has a “zero liability policy” for fraud cases, or unauthorized payments, and will reimburse customers for this. But the P2P payments provider has no such policy in place in cases of scams or APP fraud, which Sen. Warren claims is an issue that will only grow as Zelle becomes more popular.
Zelle’s US user base is expected to jump nearly 14% year over year (YoY) in 2022 and reach 61.6 million customers, per Insider Intelligence forecasts. Meanwhile, Zelle’s US P2P payments volume is slated to increase 45% YoY, hitting a whopping $531.01 billion.
The big takeaway: While the value of fraud cases and scams may be just a drop in the bucket of Zelle’s entire ecosystem, these multimillion-dollar losses have a human toll for consumers using the platform—and could deter potential users.
And while Warren’s report focused on Zelle, P2P payments fraud is an industry-wide issue that affects other platforms, including PayPal’s Venmo and Block’s Cash App. As consumers adopt faster and more convenient payment methods, regulators will want to ensure that proper protections are in place to help mitigate consumer losses.
This article originally appeared in Insider Intelligence's Payments Innovation Briefing—a daily recap of top stories reshaping the payments industry. Subscribe to have more hard-hitting takeaways delivered to your inbox daily.
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