Fraud at banks’ digital-cash app Zelle
“I know of one bank that was experiencing a 90 percent fraud rate on Zelle transactions, which is insane.”
Genevieve Gimbert, PricewaterhouseCooper financial crimes unit
Big banks are making it easy to zap money to your friends. Maybe too easy.
Zelle, a service that allows bank customers to instantly send money to their acquaintances, is booming. Thousands of new users sign up every day. An estimated $75 billion zoomed through Zelle’s network last year. That’s more than twice the amount of money that people transferred with Venmo, a rival moneytransfer app.
But the same features that make Zelle so useful for customers, its speed and ubiquity, have made it irresistible to thieves. Hackers and con artists have used the system to steal from victims — some of whom had never used Zelle or even heard of it until someone used it to clean out their bank accounts.
While all financial systems are susceptible to fraud, aspects of Zelle’s design, like not always notifying customers when money is transferred — some banks do; others don’t — have contributed to the system’s vulnerability. And some customers who lost money were made whole by their banks; others were not.
For the banks, Zelle is a big — and must-win — effort in the field where money is headed. As people become accustomed to splitting dinner checks, paying for their morning coffee and hailing an Uber without touching paper money, banks are rushing to stake their claim on the wallet of the future.
Apps including Venmo (which is owned by PayPal), Popmoney, Square Cash and Apple Pay have made digital cash transfers quick and simple. Banks were falling behind. So they joined up to create a rival product, run by Early Warning Services, a Scottsdale, Ariz., consortium that is jointly owned by seven large banks.
In June, Early Warning introduced Zelle. It is built directly into each bank’s mobile app, making the system easy to use for customers — or thieves who gain access to their accounts.
Eighteen banks in the United States, including most of the biggest financial institutions, are using Zelle, and 70 more are in the process of setting it up. Collectively, they connect about half of the traditional checking accounts in the United States.
“I know of one bank that was experiencing a 90 percent fraud rate on Zelle transactions, which is insane,” said Genevieve Gimbert, a partner in PricewaterhouseCooper’s financial crimes unit.
Zelle said the problem is under control.
“There are very few incidents,” said Lou Anne Alexander, Early Warning’s head of payments. “When there is a problem, we and the banks are proactive. It’s not something we’re putting our heads in the sand about.”
Stacy Cowley is a New York Times writer.