How Much Fraud is on Zelle? Depends Who You Ask

As lawmakers and regulators push for enhanced consumer protections on the bank-owned payment platform Zelle, there appears to be a paucity of reliable data on how prevalent fraud in real-time payments actually is.

Last week, Sen. Elizabeth Warren, D-Mass., singled out Wells Fargo, alleging that data showed customers of the San Francisco bank are reporting fraud and scams on Zelle at 2.5 times the rate of customers at other banks. Wells vehemently denied the allegations. 

Without identifying Warren by name, Zelle's parent company, Early Warning Services, which is owned by seven large banks including Wells, said that "an external analysis," was "misleading" and "inaccurate." Early Warning said that more than 99.9% of the 1.8 billion in peer-to-peer payments sent last year were processed without a hitch. 

Isaac Boltansky, managing director and director of policy research at BTIG, questioned what type of policy solution would be proposed to combat fraud given that legislation to amend the Electronic Fund Transfer Act is highly unlikely. 

A key problem in determining fraud and scams on Zelle is a lack of publicly available data that can be compared and analyzed by an independent body such as the Government Accountability Office. Last week, Warren released a letter she had sent on Oct. 6 to Charlie Scharf, Wells' President and CEO, alleging that Wells had a far worse track record compared with other banks. But analysts said they could not independently verify the data based on the limited information released by Warren's office.

"Zelle is an app that works with a customer's bank account and generally there are two confirmations, every time a customer sends money, where they ask if you are sending and you confirm," said Groshans. "If the fraud was user-authorized, the bank isn't responsible."

The issue is further complicated because not every fraud claim can be verified. If a bank is able to verify that fraud occurred by confirming that a criminal illegally gained access to their account and made payments without authorization, then they reimburse the customer. Banks refunded 47% of customers, on average, who reported fraud on their account, according to a report Warren released earlier this month. Her report found that Truist paid 82% of fraud claims, Bank of America paid 45%, U.S. Bancorp paid 30% and PNC Financial Services Group paid 14%.