The New York Times published an in-depth article on fraud issues that consumers using Square’s Cash App and PayPal’s Venmo are enduring. Scammers are targeting these users and tricking them out of significant amounts of money, despite the fact that users need to acknowledge and authorize each transaction. The tactics that criminals use are getting increasingly sophisticated, as highlighted in one tale of woe:
Charee Mobley, who teaches middle school in Fort Worth, Texas, had just $166 to get herself and her 17-year-old daughter through the last two weeks of August.
But that money disappeared when Ms. Mobley, 37, ran into an issue with Square’s Cash App, an instant payments app that she was using in the coronavirus pandemic to pay her bills and do her banking.
After seeing an errant online shopping charge on her Cash App, Ms. Mobley called what she thought was a help line for it. But the line had been set up by someone who asked her to download some software, which then took control of the app and drained her account.
“I didn’t have gas money and I couldn’t pay my daughter’s senior dues,” Ms. Mobley said. “We basically just had to stick it out until I got paid the following week.”
The use of P2P apps has increased this year due to consumers’ changing payment needs during the pandemic and the fraud has followed. While none of the P2P apps disclose fraud rates, this article reports that the losses are three to four times greater than typical debit and credit card fraud losses. Early Warning Service’s Zelle P2P product offered by banks and credit unions has historically held losses to less than that of typical debit card portfolios. Although no solution is immune from fraud losses, the more robust authentication measures and attention to potential scams is serving Zelle customers well.
The P2P market is at an important point in its product maturity where fraud needs to be managed and the response to consumers’ losses dealt with on a fair and equal basis—or else the industry is going to see a decline in growth and an increase in regulatory oversight.
Overview by Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisory Group