The Next Frontier in Fraud – But Not The Last
Zelle is one of the most recent incarnations in peer to peer payments. Peer to peer payments are ones that allow you to directly transfer money from one person’s bank account (the sender) to another’s (the receiver). Competitors to Zelle include PayPal, Venmo, Popmoney and CashApp.
The difference with Zelle is that it is owned by 7 of the big banks, including Bank of America and Chase.
But the challenge with these peer to peer solutions is that since Congress is still trying to figure out whether the Internet is a passing fad, consumers are not protected. The average age of Congress persons and Senators is in their 60s and many are in their 80s with some in their 90s. They probably are not using Zelle. There are no protections to consumers who get hoodwinked by con artists using these services.
The banks got into the peer to peer payments business – at least some banks did – because they feared losing their customers to the PayPals of the Fintech space.
But there is a problem. Once you voluntarily send money to someone with these apps – any of them – you can’t get it back. By the way, this is also true for bank wires.
And, unlike with credit card fraud, there is no federal law telling the banks that they have to give you back your money. Sometimes they will, but for the most part, you are out the money.
But other banks – the ones that don’t own Zelle – want a more agnostic competitor to Zelle. Welcome to FedNow.
That is the Federal Reserve’s version of Zelle and it was just launched. I am sure it will be perfect. And Secure.
Last year users transferred about $500 billion with Zelle. FedNow will likely sign up a lot more banks, so, in a couple of years, it could be many times the size of Zelle.
And so will the fraud be.
Other countries have similar instant payment systems and maybe the fed will learn from those, but the problem is likely not with the technology. In fact, almost no Zelle fraud occurs by hacking the tech.
The two major categories of Zelle fraud are social engineering and hacking your phone.
Social engineering has been around for centuries. Con someone into sending them money by PayNow. Since it is instantaneous, it can’t be easily reversed. The money is gone in an instant. The other is what we are seeing with cryptocurrency – hack the apps or the phone the apps run on.
If we assume that FedNow will move trillions of dollars a year, that is going to be an irresistible magnet for hackers.
But here is the key thing. Until Congress, in its wisdom, decides to protect consumers from fraud related to peer to peer payments, consumers are on their own. In theory, this should cause consumers to be more careful and likely the educated consumers will be more careful. But the less well educated and likely poorer folks will become the target of the scam artists. These are also the people who are least able to afford the losses.
Will the hackers come – I think that is a sure bet.
Will Congress act to protect consumers – that is a far less safe bet.
Should Congress make the banks liable for consumers’ lack of education and poor choices – I don’t know.
Educate yourselves, your families and your friends before they have to pay the price.
If you need help with this, please contact us.
Credit: American Banker
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