NEW YORK–Community banks and credit unions could discontinue offering instant-payment apps like Zelle if required to reimburse consumers who are victimized by scams, according to NAFCU and the Independent Community Bankers of America (ICBA).
Representatives of both trade groups told the Wall Street Journal that plans by lawmakers and regulators to do more to protect consumers from fraud, as well as an announcement by the seven large banks that own Zelle to standardize refunds for victims of fraud on the platform—as CUToday.info reported here—could cause some banks and credit unions to quit offering the service.
According to a report on the Zelle-owning banks’ plans, the shift would reverse the network’s current policy, which typically sticks customers with the losses on any Zelle transactions that customers/members physically initiated themselves — even if they were tricked into sending their cash to a scammer.
Zelle is run by Early Warning Services, which in turn is owned by JPMorgan Chase & Co., Bank of America Corp., Wells Fargo & Co., U.S. Bancorp, Capital One Financial Corp., PNC Financial Services Group and Truist Financial.
The Journal, citing a report by ACI Worldwide, said scams using instant-payment apps like Zelle, Venmo and CashApp are expected to cost Americans $3 billion by 2026, up from $1.6 billion in 2021.
Lawmakers Express Concerns
As the Journal further noted, financial institutions are required by law to reimburse customers for payments they didn’t authorize if a bad actor takes control of their account. No such requirement exists for customers who are tricked into making payments under false pretenses, a growing problem on instant-payment apps like Zelle that has caught the attention of lawmakers like Sen. Elizabeth Warren (D-MA), as CUToday.info has also reported.
“Some institutions may pull away from partnerships like the ones with Zelle or not offer as many products and services because of the expense that they will anticipate taking on,” Greg Mesack, senior vice president of government affairs at NAFCU, told the Journal.
‘Little Room’ to Customize
Meanwhile, Rebecca Kruse, chief operating officer at ICBA Bancard, a subsidiary of the Independent Community Bankers of America, told the Journal that putting financial institutions on the hook to repay scammed consumers will disproportionately affect smaller banks, which operate with thinner margins.
“When utilizing Zelle and other [peer-to-peer] applications, community banks have little room or ability to customize the applications, including fraud warnings and alerts to end users,” Kruse was quoted as saying, before adding that the new proposed playbook “may threaten their ability to offer these services.”
0.1% of Transactions Fraudulent
According to the Journal, Early Warning Services said fraud and scam payments represent less than 0.1% of payments across the network, which processed 1.8 billion transactions worth more than $490 billion last year.
Credit unions and banks with less than $10 billion in assets make up more than 90% of signed financial institutions on the Zelle network, Meghan Fintland, a spokesperson for EWS, told the Journal.
“Customers who started using Zelle increased year-over-year profit [for financial institutions] by an average of $24 more than non-Zelle user,” according to Fintland.
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