Zelle needs to bolster its fraud protection

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Zelle, the bank-based peer-to-peer (P2P) payments tool known for its instant interbank transfer features, rose to popularity in the last year, processing 247 million transactions in 2017. But some users have experienced fraudulent transactions through Zelle, according to a series of interviews conducted by The New York Times.

Consumers interviewed have lost hundreds, or even thousands, of dollars in fraudulent transactions through Zelle, with hackers and con artists using the network to steal from them. In some cases, the money transfers never reached the recipient, but instead went to a hacker’s account. In another case, a customer was sent a phishing email that appeared to be a legitimate email from Wells Fargo, which tricked her into entering her digital banking credentials into a fake website.

She then received a spoofed phone call, supposedly from the Wells Fargo fraud department, causing her to hand over one-time passcodes that enabled the fraudster to access her Zelle account. That customer lost $2,500 from the scammers. And because P2P platforms don’t have the same fraud protections that credit cards do, not all consumers received refunds from their banks.

Zelle’s value-added features could actually make the service vulnerable to fraud. Because Zelle transfers take place within seconds — faster than other P2P services, which can take several days to settle — it’s harder for banks to stop, detect, or reverse fraudulent transactions.

That’s especially true because not all banks that integrated Zelle implemented their own fraud protection. Zelle’s P2P rival Venmo, for example, faced criticism for leaving its users vulnerable to fraud, and subsequently upgraded its security policies in 2015 to better detect suspicious transactions.

Zelle should do the same, as it’s the firm’s responsibility to bolster the protection of its services, and the banks’ duty to communicate the risk of any services to their customers. Bank partnerships give Zelle a security advantage that other P2P platforms don’t have, but if fraudulent transactions persist, Zelle could have issues remaining competitive in the crowded P2P space.