Discover the Collaborative Efforts to Combat Zelle Scams: Banks and Tech | HackerNoon

Although just a fraction of Zelle transfers are fraudulent, the financial losses are still tremendous because so many people use the app. Could a joint effort between big banks and tech companies stop these scams for good?

Addressing the Increasing Prevalence of Zelle Scams

The peer-to-peer payment app Zelle gives people a fast, easy way to send and receive money. Unfortunately, scammers exploit that convenience. According to the United States Federal Trade Commission, 20% of the people who reported paying a fraudster with a payment app said they used Zelle.

On this platform, victims of scams have little recourse. While it typically transfers money in minutes, transactions can happen almost instantaneously. Plus, virtually anyone can create an account. They only need a U.S. phone number or an email address.

Unfortunately, it is almost impossible to reverse a Zelle transfer since it pulls money directly from your bank account. It’s not like canceling a check or disputing a charge on a credit card. Once the money’s gone, it’s gone.

In July 2024, the Permanent Subcommittee on Investigations (PSI) held an oversight hearing to evaluate how financial institutions and Zelle protected consumers from fraud. During the hearing, Melissa Feldsher — the managing director and head of payments for JPMorgan Chase — said just 0.05% of the transactions made through the bank’s Zelle platform were disputed in 2023.

Adam Vancini — the executive vice president for Wells Fargo — similarly said that over 99.9% of Wells Fargo’s Zelle transfers went through without a fraud claim. Months later, the U.S. Consumer Financial Protection Bureau (CFPB) sued JPMorgan Chase, Wells Fargo, and Bank of America, accusing the nation’s three largest banks of failing to protect consumers from peer-to-peer payment scams.

It accused them of allegedly allowing scammers to exploit the app’s token system, move between financial institutions, and retain active accounts. As a result, consumers have lost over $870 million since the platform’s release.

How Joint Initiatives Between Banks and Tech Firms Help

Since this peer-to-peer payment app is owned by Earling Warning Services — a financial tech company co-owned by seven of the largest banks in the U.S. — these institutions have a duty to protect you when you use the app. However, they can’t do it alone. Joint initiatives between financial institutions and tech companies are essential for addressing the increasing prevalence of peer-to-peer payment scams.

Why do they need to collaborate? For one, just three banks — JPMorgan Chase, Wells Fargo, and Bank of America —handled about 73% of Zelle transactions in 2023. This peer-to-peer payment platform is inextricably bound to regional financial institutions.

The PSI hearing and the CFPB’s lawsuit boil down to a lack of security features and oversight, both of which can be fixed with tech. Today, the big banks mainly focus on working with law enforcement to head off fraudsters before you send them money. However, to stop advanced scamming techniques, they need tech.

Know Your Customer (KYC) is an identity verification process. Your banking institution ensures you are who you say you are when you open an account. They check back in periodically just in case you’ve been hacked.

With artificial intelligence, KYC becomes incredibly accurate. The advanced fraud detection algorithm can monitor your behaviors — like how you tap, when you open the app, and who you send money to — to verify your identity. Scammers and bots can’t replicate that level of detail. If Zelle, big banks, and AI firms collaborate, they could stop most scams on the platform this way.

The Challenges of Adapting to Scamming Techniques

In a joint statement to the PSI hearing on Zelle fraud, several bankers’ associations argued countering fraudulent activity must be a “cross-industry” effort and “banks cannot stop criminals by themselves.” They said everyone from social media platforms to telecommunications companies to law enforcement has a part to play.

While big banks are already taking strides to mitigate malicious activity by investing in tech companies’ technologies, they must do more to prevent fraudsters from creating and using accounts. Keeping them off the platform is crucial because scamming techniques are evolving. For example, with AI, they can make convincing deepfakes or elaborate social engineering scams. If they automate their work with an advanced intelligent algorithm, they could start an enterprise-level fraud ring.

Still, even the latest fraud detection tools might not be enough. Sometimes, people are adamant the person they’re sending money to is legitimate, ignoring the red flags. In-depth customer education is just as essential as security tools for securing digital payment platforms.

Collaborating to Stop Peer-to-Peer Payment Fraud

Identifying fraudulent activity on a platform as widely used as Zelle is no easy feat — especially when scammers have access to much of the same technology as the good guys. Eradicating fraudsters once and for all requires robust, strategic collaboration from banks and tech firms.