Credit unions and community banks are reassessing their partnership with Zelle. This is as an uptick in fraudulent peer-to-peer (P2P) payments continues. And they may no longer be able to afford to reimburse consumers affected. This is according to a Wall Street Journal article reports.
According to the WSJ:
Instant payments on apps such as Zelle differ from credit-card transactions, which carry fees that can be used to offset the losses from fraud. Card payments and traditional bank transfers can also take up to three days to be completed, making them easier to reverse. Zelle transfers are free and instant, allowing scammers to withdraw or convert the money into cryptocurrencies, making the funds harder to recoup.
By law, financial institutions must reimburse for fraud when they don’t authorize a payment. Or they must reimburse in the case of a fraudster taking over the account. But this doesn’t apply to consumers who make payments out of their own free will and are deluded into paying scammers. Based on this legal precedent, community banks and credit unions had presumed they wouldn’t be on the hook for reimbursing customers for scams. If that changes, those institutions may see Zelle—or other instant payments providers—as an unnecessary risk to profits.
One aspect of Zelle scams that make them particularly difficult to resolve is that they involve real-time money transfers. With traditional payments, there is a time lag between payment initiation and the moving of funds. This can act as a window for customers to question the transaction before it goes through. Not so with Zelle.
WSJ notes that if new regulations were put in place that forced banks to shoulder the responsibility for repaying scammed customers, it wouldn’t impact all banks the same way.
“While bankers and consumers are all excited about P2P and faster payments, it is important to note that sometimes regulations do not keep pace with innovation,” said Brian Riley, Director of Credit and Co-Head of Payments at Mercator Advisory Group. “Top banks are working out strategies that cover final settlement, and smaller institutions that flocked to Zelle need to consider the same.”