stake a claim

The banking industry's answer to Venmo has a growing fraud problem

A Senate report shows peer-to-peer app Zelle often fails to refund fraud victims.
Raising a hue and cry.
Raising a hue and cry.
Photo: Bill Pugliano (Getty Images)
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Incidents of fraud and scams are becoming more commonplace on peer-to-peer payment service Zelle, according to a report issued Monday (Oct. 3) by the office of senator Elizabeth Warren.

Not only is fraud “growing on the platform” but also the large banks that partly own the US-based digital payments network “are not refunding the vast majority of defrauded consumers, breaking their promises to their customers and potentially violating federal law,” the report states.

The findings are based on data financial institutions volunteered after senators Warren and Bob Menendez called on big bank CEOs to provide information on the volume of and procedures for addressing fraud on their Zelle platform during a Sept. 22 senate hearing.


“New internal data from the big banks shows that their platform Zelle is rampant with fraud and theft, and few customers are getting refunded — potentially violating federal laws and consumer rules. Despite their CEOs’ promises to the Senate Banking Committee, JPMorgan and Wells Fargo have still not turned over complete data, and I’ll keep fighting for stronger consumer protections and to hold all these banks accountable for abuse.” —Senator Warren.

Very brief history

1990: Early Warning Services, LLC (EWS) is created by a partnership of large banks to “share data to mitigate deposit losses …and [create] check deposit and check payment validation products.”

2017: the banks that own EWS—JPMorgan Chase, Wells Fargo, U.S. Bank, PNC, Capital One, Bank of America, and Truist—directed the company to create a peer-to-peer payment platform that could be integrated directly into individual financial institutions.

By the digits, as per Zelle

5 billion+: transactions on Zelle since its launch in 2017

$1.5 trillion: volume of money moved on Zelle since inception

1700: banks and credit unions that offer Zelle in their apps.

99.9%: share of payments sent without any report of fraud or scams, according to Zelle

By the digits, as per the Warren report

$213.8 million: the collective value of 192,878 cases of fraud across four banks in 2021 and the first half of 2022

3,500 cases: cases where the banks reimbursed the customer

47%: percentage of dollar amount reimbursed in cases where it’s clear funds had been taken out of customers’ account without authorization

$90 million: Scam and fraud claims in 2020 for the four banks that shared data

$255 million: Scam and fraud claims the four banks that shared data are on pace to receive in 2022

What Senator Warren wants

The report calls upon the Consumer Financial Protection Bureau (CFPB) to “act to clarify and strengthen” Regulation E, which outlines rules and procedures for electronic funds transfers (EFTs) and provides guidelines for issuers of electronic debit cards. It also says “to include fraud in the Regulation’s error resolution purview.”

Why banks think it’s unreasonable to tighten regulation

A statement on Warren’s Zelle report by American Bankers Association (ABA), Bank Policy Institute (BPI), Consumer Bankers Association (CBA) and The Clearing House, acknowledges that “like every other instant P2P payment service,” Zelle is not “entirely free from those who seek to defraud the American consumer.”

But expanding current liability framework for banks would hurt consumers choice, limiting “the instantaneous features or impose fees to recover their additional costs,” and it would “have a chilling and disproportionate impact on community banks, and all small financial institutions, and some would be unable to offer P2P payment services altogether given the potential for unlimited liability.”

The app meant to give Venmo a run for its money, isn’t even the worst of the lot. Major banks pointed to the prevalence of consumer fraud to being much greater on nonbank P2P providers, like Venmo, Paypal and Cash App, citing a recent BPI survey.

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