Payments

Banks might dump Zelle due to fraud refund scheme

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December 13, 2022

Banks may choose to drop partnerships with instant payments apps, like Zelle, if they have to reimburse scam victims. The seven banks that own Zelle recently launched a plan to reimburse scam victims if the scammer is pretending to be a bank employee, according to a report by Washington Post.

With Zelle, which is owned by JPMorgan Chase, Bank of America Corp., Wells Fargo, U.S. Bancorp, Capital One Financial Corp., PNC Financial Services Group and Truist Financial Corp., customers can instantly send payments between bank accounts. However, these transactions can't be reversed, which makes it easy for scammers to use.

However, if smaller banks have to refund scammed customers it could severely impact their bottom lines.

"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," Rebecca Kruse, COO of Independent Community Bankers of America, a trade association, told the Post. She also said the refund plan from the banks could impact smaller banks' "ability to offer these services."

Currently, credit unions and banks with less than $10 billion in assets make up 90% of financial institutions on the Zelle Network, Meghan Fintland, a spokeswoman for Early Warning Services, the company that runs Zelle, told the news outlet.

"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 the National Association of Federally-Insured Credit Unions, told the Post.