The news: Community banks and credit unions are concerned that the Zelle fraud reimbursement policy could hinder their ability to offer the service, per The Wall Street Journal.
Representatives from two trade groups—ICBA Bancard and the National Association of Federally Insured Credit Unions—said smaller banks can’t always customize their Zelle offerings with things like fraud warnings or alerts and might not be able to shoulder repayment expenses.
Key context: Concerns about fraud on peer-to-peer (P2P) payment apps like Zelle, Venmo, and Cash App have taken off this year. Both Congress and the Consumer Financial Protection Bureau (CFPB) have pressured the industry to improve its response to fraud—which, while a small share of overall transactions, is estimated to cost customers $3 billion by 2026.
Why it matters: Zelle’s demand could create a conundrum for smaller banks.
Zelle’s popularity makes offering the service critical for banks (though if they drop out, customers might still be able to access it through their debit cards), and reimbursements could help generate trust. Removing or restricting it could lead to attrition or reduced engagement. P2P thrives on the network effect, so widely available platforms that let customers transact with anyone in their networks are key to their success.
Down the line: We think it’s unlikely that many—if any—smaller FIs will cut ties with Zelle because of its popularity. But friction with its banks could open doors for two classes of players:
It’s also plausible that pushback from smaller FIs could shift the Zelle reimbursement plan—which is still being finalized—or influence future regulation governing P2P fraud responses.
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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