Currently, it is difficult to overestimate the convenience of mobile applications for money transfers. But does this convenience always correlate with their reliability? And do foreign services for instant money transactions in foreign banks always turn out to be 100 percent protected from fraudsters?
Recently, US regulators have been investigating how major banks orchestrate fraud on the peer-to-peer payments platform Zelle. According to experts, the investigation by the Consumer Financial Protection Bureau focuses primarily on JPMorgan Chase, Bank of America BAC and Wells Fargo WFC and other large financial institutions.
The reason behind the popularity of the Zelle app
Zelle has caught the attention of regulators because of its excessive popularity. The P2P payment app is really handy for splitting bills, paying bills to friends, or transferring funds quickly. In general, a P2P peer-to-peer payment is a direct transfer of funds between two individuals or entities without the mediation of banks or other financial institutions. It can be money transfer through mobile apps, online platforms or even cash. P2P payments allow users to exchange funds without unnecessary fees and delays.
Zelle became popular in the US for several reasons. First, Zelle is integrated directly into banking applications, making it user-friendly. They can send money to their contacts without leaving their bank account. Second, transactions through the app are instant. This is especially convenient for transferring money between friends or relatives. Third, Zelle uses encryption technology and two-factor authentication. Fourth, the app works with leading US banks and credit unions, making it accessible to most customers. Finally, most banks do not charge fees for using Zelle, which also adds to its user points.
The Zelle app, owned by a consortium of seven of the largest US banks, launched in 2017 and competed successfully with PayPal-owned Venmo and Cash App. With more than 2,100 partner financial institutions, it processed 2.9 billion transactions worth $806 billion last year, up 28% from 2022.
Any cyber service has its vulnerabilities
However, when using any financial service, it is important to be aware of potential risks and fraud. According to the Federal Trade Commission, in 2023 there were 65,000 cases of fraud related to payment applications, which caused losses of $210 million. This is 28% more than in 2022, when $163.5 million was recorded. US regulators have accused big banks of not doing enough to protect consumers from cyber fraudsters who misappropriate people’s electronic money.
For example, a Senate investigation found that JPMorgan, Bank of America and Wells Fargo reimbursed customers in only 38% of fraud cases, leaving $100 million in limbo. The Blumenthal-Warren bill would force banks to share liability when cybercriminals trick users into authorizing transfers.
Among other things, the bill’s authors expect banks to implement robust security measures, such as multi-factor authentication and real-time transaction monitoring, to prevent cyber fraud. Also, financial institutions are obliged to regularly report on cases of cyber fraud and the measures taken to prevent them. E-commerce service providers and other payment processing companies can be held liable for cyber fraud that occurs on their platforms.
If passed, the law would significantly strengthen consumer protection against cyber fraud and make banks more accountable for the security of their systems. It will also help to reduce the number of cyber fraud cases and also help compensate victims for financial losses.
Although Early Warning, the owner of Zelle, claims that 99.95% of transactions occur without fraud, regulators continue to investigate the situation.
The FBI reported that it received $12.5 billion in online fraud reports last year, a 22% increase over 2022. However, the department is aware that this is a “conservative” view of the scale of the problem: when the FBI penetrated the largest group of extortionists, Hive, it turned out that only one in five of its victims turned to law enforcement officers.
Measures that banks plan to take to prevent fraud on the Zelle platform
Banks should continuously improve their user authentication process by requiring more verification factors such as biometrics (fingerprints, facial recognition) or one-time codes. For the timely detection of fraud, it is appropriate to install monitoring systems that detect suspicious transactions. Banks can provide information to customers on how to avoid fraud, how to recognize suspicious situations and how to act in case of problems.
Of course, financial institutions must regularly update their fraud detection and prevention procedures and work with regulators and law enforcement to detect and stop fraud on platforms like Zelle.
Tatyana Morarash
