Zelle Fumbling Fraud Response

Policy on fraud turns off smaller banks

Andy Spears
2 min readDec 16, 2022


Photo by Campaign Creators on Unsplash

Even as bank-to-bank payment system Zelle faces competition from newer peer-to-peer payment systems, the company is struggling to develop a fraud response that will allow it to expand its customer base.

Frankly, Zelle needs to assure customers that they won’t be liable for fraud while also protecting banks from the risks of fraudulent transactions.

News reports have highlighted the lack of fraud protections in Zelle, and Congress has been taking notice.

Now, American Banker reports that Zelle is rolling out a fraud protection solution — but its one that leaves banks on the hook for cash.

While that’s a risk big banks may be willing to take in order to keep their customers, community banks may struggle to absorb that risk.

As AB notes:

Reports that Zelle is in talks with banks to standardize refund practices for certain types of fraud come after a handful of high-profile class actions were filed earlier this year involving consumers who lost money in Zelle scams, along with the possibility that regulators could take action if the banking industry doesn’t solve the problem.

But thousands of smaller banks still on the fence about adopting Zelle are likely to be even more turned off now by the prospect of reimbursing consumers for potentially steep losses from user-initiated scams.

Two Key Takeaways

  1. Use caution when using Zelle — the fraud protection is not yet where it needs to be.
  2. Even when Zelle does deploy fraud protection, it may mean the payment service is NOT available at smaller banks or community banks.

There are other peer-to-peer payment solutions that do offer a better level of fraud protection. While these may lack the convenience of Zelle — which is easy to use in a banking app — they do provide somewhat better risk reduction measures.



Andy Spears

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