Is an Alternative to Zelle Coming Soon?

Yes, but it may be just as susceptible to fraud

Andy Spears


Photo by on Unsplash

Following an announcement by the Federal Reserve of the launch of a “FedNow” payments system in 2023, a coalition of consumer groups is raising concerns about potential fraud similar to the fraud issues that have plagued payment provider Zelle.

The groups, including the National Consumer Law Center (NCLC), National Consumers League (NCL), and National Community Reinvestment Coalition (NCRC) indicated support for a public payments system but also expressed concern over consumer safety.

“An instant payments service like FedNow can have a lot of benefits to consumers. The coming FedNow service will prevent instant payments from being controlled by the largest banks, but fraud protection is critical and is sorely missing,” said Lauren Saunders, associate director at the National Consumer Law Center. “The new FedNow rules leave payments exposed to the same type of fraud that plagues Zelle today. The Fed must take measures before FedNow launches to ensure that it does not become a haven for fraud, and the CFPB and Congress must enact rules to make all person-to-person payment services safe.”

FedNow will be a new bank-to-bank payment rail, similar to The Clearing House’s Real Time Payments (RTP) that undergirds Zelle, enabling nearly instantaneous payments between individuals and also to and from businesses. Recent news reports have highlighted the lack of fraud protections in Zelle, prompting three senators to write a letter to Zelle’s parent company expressing alarm.

The groups said that the experience in the United Kingdom with similar payments systems should guide the development of fraud protections with FedNow.

“It would be a mistake to underestimate the risk of fraud in FedNow,” said Adam Rust, Senior Policy Advisor at NCRC. “We appreciate that the Fed is going to offer this service, but it is important that they get it right. We believe that the use of faster payments, not just to pay other people but also to pay businesses, will expand greatly in the next few years, which in turn could trigger even greater fraud. In the United Kingdom, where faster payments were introduced earlier, regulators report that 96 percent of “sender-authorized” fraud involves a faster payment, and the UK regulator will be requiring banks to offer scam victims compensation. That underscores why we cannot have a system in the United States that leaves consumers vulnerable to induced fraud.”

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Andy Spears

Writer and policy advocate living in Nashville, TN —Public Policy Ph.D. — writes on education policy, consumer affairs, and more . . .