Zelle has been making headlines this summer as federal lawmakers and regulators accuse its parent company, Early Warning Services (EWS), of insufficient action to protect customers from fraud.
Senators, led by Richard Blumenthal (D-Conn.), following a months-long investigation, are pressuring EWS to fully reimburse fraud victims. Meanwhile, the Consumer Financial Protection Bureau has launched an investigation into major U.S. banks, which are members of the consortium that owns EWS, regarding their handling of fraud on Zelle.
The crux of the debate centers on transfers made on the Zelle network that are authorized by account holders but later revealed to be the result of scams. The current relevant statute, the Electronic Fund Transfer Act, only covers unauthorized transfers. Despite this, banks argue that they have been reimbursing customers deceived into sending funds to criminals and believe additional regulation is unnecessary.
The banks insist that Washington’s focus should be on identifying and prosecuting the criminals behind these scams. Meanwhile, legislators and regulators argue that the law needs to be expanded to cover these evolving situations, placing additional liability on banks for these new types of scams.
Who’s right?
How Much Fraud Is Really Occurring on Zelle?
Among the key points of contention between banks and regulators is the size and scope of fraud on the Zelle network.
Regulators have focused on the percentage of disputed transactions that have been reimbursed, while banks emphasize the low percentage of transactions that are disputed.
At J.D. Power, we examine this issue in detail as part of our U.S. P2P Transfers Satisfaction Study, which explores consumer behaviors and brand relationships in the person-to-person (P2P) transfers space. Our findings reveal that instances of fraud on the Zelle network are not only rare but also significantly less frequent compared with the broader P2P transfers industry.
Here are some hard numbers: Just 3% of Zelle customers in our study reported losing money to a scammer, compared with 5% across all P2P transfer brands, on average. Additionally, just 5% say they sent money to the wrong person vs. 7% on average among all brands, and only 1% reported an unauthorized transfer from their account, versus 5% on average among all brands. Overall, 8% of Zelle customers in the study said they experienced some form of fraud, compared with 13% across the P2P transfers industry.
And here’s a wrinkle: Our data show that P2P transfers customers say they experience fraud less frequently than do customers of other financial services products. In the J.D. Power Polaris Financial Health Report, 28% of financial services consumers say they experienced fraud on their credit or debit card in the past year, compared with only 16% experiencing fraud with P2P transfers.
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Fraud Is Rife in the American Economy
All of this is not to dismiss the significance of even a single instance of fraud on Zelle or any P2P transfers platform. Rather, it’s to emphasize that the issue of fraud extends far beyond any one financial services platform or domain.
Our data shows that more than one-fifth (22%) of financial services customers believe that the risk of bank account fraud is higher today than it was a year ago.
Meanwhile, only 21% of retail banking customers strongly agree that their bank enables them to make purchases and move money safely — a significant drop from 28% in 2022.
Additionally, security concerns are impeding the growth of key payment methods, with 34% of consumers citing security concerns as the primary reason they don’t use debit cards or digital wallets.
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What Banks Must Do to Show Maximum Effort on Fraud
Fraud is a critical issue for financial services customers, and brands must prioritize fraud prevention at the individual customer level.
In our data on consumer P2P transfers experiences, we observe significant drops in satisfaction when customers perceive brands as unhelpful in recovering funds after an unauthorized transfer, correcting transfers sent to the wrong person, or recovering funds lost to scammers.
However, customers are not just demanding better service after fraud — whether authorized or not — has occurred. We also see a sharp decline in satisfaction among customers who feel their brand lacks preventative measures against errors when sending money. This indicates that customer retention in the P2P transfers space depends heavily on both fraud prevention and resolution.
Notably, concerns about security are the second most common reason customers cite for wanting to switch P2P transfer brands.
But here’s a twist: When fraud does occur, customers typically blame the scammer rather than their financial services provider. In fact, we recently asked fraud victims whom they blamed for their security issue. Among both banking and credit card customers, the most common response was the individual criminal or scammer — only 10% cited their bank or credit card issuer.
While fraud remains a significant concern across all financial services platforms, including Zelle and other P2P transfer networks, it’s clear that the problem is multifaceted and extends beyond any single platform or domain.
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Consumers Want Action Plus Communication
The data highlights that while Zelle reports lower instances of fraud compared to industry averages, the broader issue of fraud affects consumer trust and satisfaction across the financial services sector.
As such, financial institutions must prioritize not only effective fraud prevention and resolution strategies but also transparent communication with their customers.
Ultimately, addressing this fraud requires a collaborative effort among banks, regulators and technology providers to ensure that all stakeholders are working together to protect consumers and maintain confidence in the financial ecosystem.
About the Author:
Sean Gelles is senior director of payments intelligence at J.D. Power.