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.
Warren's latest effort, some analysts suggested, was aimed at singling out Wells for its past behavior. Fraud on Zelle has become the latest proxy battle for publicly beating up on the largest banks ahead of the midterm elections, some analysts said.
"Putting the banks in a bad light is still in vogue, that has not gone away, and that's what we're seeing here," said Ed Groshans, senior research and policy analyst at Compass Point Research & Trading.
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.
"It's still a little bit unclear what the policy solution should be," Boltansky said. "If Zelle works 99.9% of the time, is this really something we should be looking at?"
Data troubles
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 Fargo's 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.
"We don't believe the numbers in a recent report are done on a comparable basis, and therefore the analysis is misleading and inaccurate," said Amy Bonitatibus, a Wells spokeswoman. "Based on the data we've seen, our Zelle fraud and scam rates are consistent with the industry and have never been twice as high compared to other banks."
Wells has struggled to rebound from a steady stream of
"Warren is a longtime critic of the banks in Washington, so it's not surprising that she is the highest-profile voice on this issue," said Ian Katz, managing director at Capital Alpha Partners. "Whether it resonates with a lot of others remains to be seen, and Republicans are less and less reliable defenders of the big banks."
Other analysts agreed that fraud on Zelle was being used as a cudgel against Wells in particular.
"Sen. Warren will pick up a stick, a stone or anything she can find on the ground to beat Wells Fargo over the head with, even though it's wholly unclear whether the numbers [she released] were facts," Boltansky said.
One reason the numbers may not add up: Fraud and scams are considered to be two separate categories that are conflated. Regulation E, which implements the EFTA, provides specific protections to consumers when they transfer funds electronically. Under the act, banks are required to investigate fraud claims by consumers, known as unauthorized transactions, in which money is stolen from an account. Scams, on the other hand, involve a consumer who is tricked into sending money or incorrectly sends a payment to the wrong person. Scams in which a consumer authorized a payment are not covered by the funds transfer act, lawyers said.
"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," Groshans said. "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%,
Some analysts suggested that Warren erred in asking for data on fraud and scams combined, and that the comparisons may have resulted in verified fraud claims from three of the banks being compared with Wells Fargo's gross but unverified claims, resulting in an apples-to-oranges comparison that is markedly unflattering for Wells.
In a report Monday, Groshans said Warren's efforts to raise concerns about Wells Fargo's fraud rate with regulators "have yielded minimal results, if any," and suggested the goal was to cast Wells "in a negative light."
In the letter to Wells, Warren alleged that three banks — BofA, PNC and U.S. Bancorp — had sent data that collectively showed that 0.03% of transactions, or a total of over 135,000 claims, were reported by customers as fraud or scams. Warren then claimed that "for Wells Fargo the rate at which its customers reported being ripped off by fraud and scams on Zelle was more than twice as high."
No mention was made of two banks, Capital One and JPMorgan Chase, that allegedly did not turn over any data to Warren.
Getting at the issue of what's really going on with fraud on Zelle is only part of the story, some analysts said. The larger question is whether Zelle has a bigger problem with fraud and scams compared with other real-time payment options including CashApp, which is owned by Block (formerly Square), PayPal and Venmo, which owns PayPal.
The Bank Policy Institute claims that Zelle has a lower share of disputed transactions, in which a consumer claimed a transaction was fraudulent, or unauthorized, than its competitors. The share of disputed transactions on Zelle, was 0.058% in the first half of this year. By comparison, consumers disputed 0.351% of transactions on CashApp, 0.171% on PayPal, and .062% on Venmo, which owns PayPal, according to a survey the institute conducted.
Though Zelle is advertised as a speedy service, payments are treated like cash. Banks use pop-up windows to remind customers that they are on the hook if the funds are sent to the wrong person.
But many consumers still believe that a bank or payment provider will reimburse them for fraud or scams.
"We have a consumer society that has been conditioned that they can be made whole again," said Katz. "If you make a purchase with Amazon, Walmart or Target, you can return it with no questions asked."
