Over the past several months, banks in Charlotte and beyond have faced sharpened scrutiny of Zelle, a digital payment network created and marketed by the country’s seven largest banks.
And many customers have fallen victim to scams that are growing more common on the service.
Lawmakers have pushed banks to crack down on Zelle fraud and pay back a greater number of customers when they get tricked into losing money. Banks say they reimburse all unauthorized transactions already, and that fraudulent claims account for a minuscule fraction of the money sent back and forth on the network.
Here’s a breakdown of why the payment service has come under fire — and what you can watch for on Zelle to protect your own cash.
What is Zelle?
Zelle is a peer-to-peer payment network similar to PayPal or Venmo. It allows users to digitally send money from their accounts to users at different banks.
The service, created in 2017, is operated by Early Warning Services LLC, a company co-owned by seven banks: Bank of America, Wells Fargo JP Morgan Chase, Truist, U.S. Bank, PNC and Capital One. But many other banks use Zelle — a total of more than 1,700.
Zelle is now the country’s most widely used transfer service, with more than double Venmo’s payment volumes, MarketWatch reported in October.
But unlike Venmo, CashApp or other similar services, Zelle transfers money instantaneously from bank account to bank account with no entity in between.
Why is Zelle being criticized?
Lawmakers and regulators have pointed to growing complaints of fraud from bank customers, suggesting that Zelle users may have become a target for scammers.
Fraudsters are likely drawn to Zelle for its ubiquity and ability to instantly transfer cash directly from a bank customer’s account, said Teresa Murray, a consumer watchdog for U.S. Public Interest Research Group.
A report from Sen. Elizabeth Warren found that four of the country’s largest banks, including Bank of America and Truist, are on track to report more than half a million claims of fraud on Zelle for the past three years.
Critics also argue the banks don’t do enough to repay customers that get scammed on Zelle.
By law, banks are required to cover customers’ losses for unauthorized transactions, like a third party hacking into a customer’s account. From the banks’ point of view, those rules don’t apply to authorized transactions — ones that a customer initiated — even if they were tricked into doing so.
That means that customers are often left on the hook for losses.
Zelle and the banks behind it have pointed to the growing number of users as an explanation for increased claims, and the fact that the vast majority of transactions on the service — more than 99.9% — occur without incident of frauds or scams.
What do Zelle scams typically look like?
One common con on Zelle is known as a “me to me” scam.
This is how Bank of America described it in one email to customers: Customers get a text that looks like a fraud alert from their bank, asking about a suspicious transaction from their bank account. After sending a text back saying they weren’t the one to make the charge, customers get a phone call.
The caller identifies themselves as a bank employee, and offers to help stop the fraud by asking Zelle users to digitally send money to themselves.
Scammers often don’t even need a password, Murray said. They can use customer’s usernames and two-factor verification code to access your bank account, and steal thousands of dollars within minutes.
In other scams, bank customers get an email, text or call from what looks like a person or business they know, urging them to send funds through Zelle.
“It’s frighteningly easy,” said Murray. “You combine robo calls and texts, with this easy, virtually untraceable way to rip people off, it’s like a horror movie.”
What happens next for Zelle?
At least three of the banks behind Zelle — JP Morgan Chase, Bank of America and Wells Fargo — are discussing a possible new reimbursement plan for customers that get scammed using the service, the Wall Street Journal reported.
The conversation has centered on standardizing refund procedures, the Journal reported, in the hopes of building trust in the service and helping more customers get their money back.
Barring a new plan from the banks, Murray said, regulators may step in to create guidelines for reimbursing customers.
The best protection against fraud
The best way to protect yourself is to watch for signs of a scam.
“Never respond to unexpected phone calls or texts or emails,” Murray said. And never ever, ever share the two-factor authentication code whether it’s for your bank account or your email.”
“If you abide by those two things, you will have fended off a lot of fraud.”