Financial App Zelle Under Fire: Fraud Prevention in Focus

The payment service Zelle, owned by heavyweights such as JP Morgan, Bank of America, and other major US banks, is under fire due to fraud allegations. However, Zelle's chief fraud risk manager, Ben Chance, believes that the app is taking all necessary measures to prevent fraud. According to Chance, the responsibility to stop fraudsters ultimately lies with the users, lawmakers, and law enforcement agencies. In an extensive interview with "Fortune" magazine, Chance addressed concerns related to an ongoing investigation by the Consumer Financial Protection Bureau (CFPB). This investigation targets JPMorgan, Bank of America, and Wells Fargo. A recent statement from JP Morgan suggested that the bank might be considering legal action against the CFPB to pre-empt the investigation. While JPMorgan confirmed the investigations, Wells Fargo and Bank of America declined to comment. The CFPB also did not comment. Chance, who joined Zelle last year after stints at Goldman Sachs, Capital One, and Barclays, highlighted what Zelle is already doing and why he believes it is sufficient. In collaboration with the US Treasury Department and Zelle's owners, he is advocating for better user education, robust policies, and more resources for law enforcement. "The real solution is to focus on the criminals committing these crimes via phone, text messages, email, digital marketplaces, and social media," Chance said. Additionally, he emphasized the necessity of partnering with these platforms, as well as financial service providers and law enforcement, to track down and apprehend the culprits. Early Warning Services, creator of Zelle, was founded in 1990 to help banks protect their customers. The consortium of owners, which includes Truist, Capital One, PNC Financial Services Group, and U.S. Bancorp, launched Zelle in 2017 to compete with payment systems like Venmo and Cash App. Since then, fraudsters have refined their techniques to deceive users, often resorting to so-called “spoofing” methods, where they pose as trusted entities. While Zelle and its owners claim to comply with or exceed legal requirements, not everyone agrees with this assessment. US Senator Richard Blumenthal, chairman of the Permanent Subcommittee on Investigations, called for an investigation in a letter to the CFPB. He pointed out that the percentage of reimbursed Zelle fraud claims dropped from 62% in 2019 to 38% in 2023. To illustrate the scale of the problem: consumers have spent more than $2.3 trillion through Zelle, according to a statement addressed to Senator Blumenthal by Mark Monaco, head of global payment solutions at Bank of America. $370 billion of this amount comes from Bank of America alone. Monaco reported that fewer than five out of 10,000 Zelle transfers last year resulted in complaints from Bank of America customers due to losses. Chance attributes the decrease in reimbursements partly to fewer legitimate fraud cases occurring. Last month, Chance published a report showing that Zelle's volume grew by 28% from 2022 to 2023, while reports of fraud fell by nearly 50%. He attributes this, among other factors, to an anti-fraud awareness program featuring actress Christina Ricci that reached 40 million people, as well as two in-app warnings before making a payment, sent 700 million times last year. Nevertheless, the problem persists. Regulatory authorities have been combating fraud since at least 1991, when President George H.W. Bush signed the Telephone Consumer Protection Act. These and later efforts in 2003 and 2009 have not stopped the surge of scams. A phone scammer who was banned from telemarketing in 2013 simply ignored the ban and allegedly made another 5 billion calls from Panama and Hungary. Other fraudsters turn to unregulated technology. Just last March, the FCC issued its first rules to combat text scammers. In March, the agency asked Congress for funding to "develop solutions to identify the makers of robocalls" and to collaborate with international partners to fight illegal robocalls and robotexts from other countries into the US. Until then, JP Morgan, Bank of America, Wells Fargo, and Zelle have teamed up with the US Treasury Department and others on the National Task Force for Fraud & Scam Prevention led by the nonprofit Aspen Institute. The group's work, starting in September, focuses on fraud education, prevention, and detection, as well as the recovery of lost funds and criminal prosecution. Bank of America's Monaco described the group in his testimony as "an initiative bringing together leading figures from government, law enforcement, the private sector, and civil society." "Fraud does not originate with Zelle and is not an exclusive problem of Zelle," says Chance. "Fraud affects all payment networks. Therefore, the solution to combating fraud must encompass all networks and not be limited to an isolated network.