Peer-to-peer payment apps may have revolutionized how we do business (and pay buddies back for drinks), but they’ve also introduced several security issues that we didn’t see back in the days of checks and cold hard cash.
Last October, U.S. Sen. Elizabeth Warren released a report warning consumers about the potential risks of using peer-to-peer payment apps like Zelle, Venmo, Square, and Cash App. It revealed that more than 190,000 scams between January 2021 and June 2022 involved the banks (Bank of America, Truist, Capital One, JPMorgan Chase, PNC Bank, U.S. Bank, and Wells Fargo) that partially own Zelle.
Additionally, according to research published by the Pew Research Center, 13% of people who used peer-to-peer payment apps in 2022 later realized that they’d been scammed. Worse, “the vast majority” of scammed Zelle users never got their money back, and the banks just didn’t care.
Now, Zelle says it’s taking steps to protect users from imposter scams and unauthorized transactions
Zelle announced in November that all users targeted by scammers started receiving refunds in June 2023. It’s better late than never, though some may argue it’s long overdue.
Interestingly, this action only comes after the company’s network operator, Early Warning Services (EWS), found a loophole that lets Zelle’s network of 2,100 financial institutions avoid liability for fraudulent transfers and keep money in their pockets.
Instead of expecting its financial partners to cover the lost funds, Zelle implemented a new “clawback” mechanism that allows banks to recover the stolen money from the recipient’s account and return it to the sender.
“As the operator of Zelle, we continuously review and update our operating rules and technology practices to improve the consumer experience and address the dynamic nature of fraud and scams,” an EWS spokesperson told Ars. “As of June 30, 2023, our bank and credit union participants must reimburse consumers for qualifying imposter scams, like when a scammer impersonates a bank to trick a consumer into sending them money with Zelle. The change ensures consistency across our network and goes beyond legal requirements.”
How to protect yourself from scammers
It’s easy to say, “That’ll never happen to me,” until it does. The good news is that there are ways to protect yourself (and your loved ones) from Zelle scams and other peer-to-peer payment app scams.
Here are a few tips:
- Enable two-factor authentication: This adds an extra layer of security to your account, making it more difficult for scammers to access it even if they have your login information.
- Monitor your transactions: Keep a close eye on your transaction history for unauthorized or unfamiliar activity.
- Be cautious of unsolicited requests: If someone you don’t know asks you to send money through a peer-to-peer payment app, don’t do it.
- Educate yourself: Zelle partnered with the Better Business Bureau Institute for Marketplace Trust (BBB Institute) to educate consumers on recognizing and avoiding potential scams. You can find the education campaign material on the BBB website.
- Be choosy when it comes to peer-to-peer payment platforms: The Zelle app isn’t the only app that’s been under fire for scams. Cash App and other platforms have also faced similar issues, so it’s important to do your research and choose a platform with strong security measures and a good track record of protecting users.