Sep. 08, 2022
In 2020, nearly 18 million Americans were defrauded via digital wallets and person-to-person (P2P) services, according to Javelin Strategy & Research. With numbers like that, P2P solutions like Zelle have come under fire, and issues are escalating. In fact, Javelin’s 2022 identity fraud study found that scams involving direct contact with victims affected 27 million consumers in the United States, with losses reaching $28 billion.
We can attribute part of this rise to an increase in authorized push payment fraud, or a specific type of attack where the sender is legitimately initiating a transaction, but under false pretenses. Similar to business email compromise, this payment fraud occurs when a legitimate user or account owner is duped into sending a payment, via social engineering, phishing, or other means.
Growth in authorized push payment fraud constitutes a cautionary tale for community banks as they consider P2P services, and this concern stems not simply from the fraud activity acceleration, but also from its aftermath. Since the first quarter of 2022, we have witnessed heightened congressional and regulatory scrutiny, and countless class-action lawsuits against banks. In all scenarios, P2P solutions like Zelle, Venmo, and Cash App have been in the hot seat, spurring debate over customer liability, levels of Reg E protections, and where the line is drawn around payment responsibility.
With such scrutiny, it’s even more imperative that community banks take appropriate actions to both support advanced payments infrastructure and protect their customers, communities, and institutions. Here are four considerations to keep in mind to help guard against fraud:
While the fraud around P2P transactions is cause for consideration, customers will continue to seek out solutions that meet their immediate gratification needs. Community banks provide their customers with the greatest levels of support by offering P2P solutions that keep their payments within the safety and security of their bank. In short, by shoring up defenses around P2P payments, community banks will deepen their customer relationships, offer secure and seamless payments, and protect their banks in the process.