Small Banks Explore P2P Options Over Zelle Scam Repayment Costs

America’s smaller banks aren’t happy with a plan to reimburse peer-to-peer payment scam victims.

Industry groups representing the country’s community banks and credit unions say these institutions could abandon partnerships with instant payment services like Zelle if forced to pay back customers who are victims of scams, the Wall Street Journal reported Monday (Dec. 12).

Last month, we reported that the seven major banks that own Zelle were at work on a plan to reimburse customers who were tricked into sending money, something Zelle has said happens very rarely. 

But the plan to repay consumers will disproportionately impact smaller banks, as they have thinner margins than banks like Wells Fargo or PNC, said Rebecca Kruse, chief operating officer of Independent Community Bankers of America, a trade association that represents about 5,000 community banks.

“When utilizing Zelle and other [peer-to-peer] applications, community banks have little room or ability to customize the applications, including fraud warnings and alerts to end users,” Kruse told the Journal. The proposed plan “may threaten their ability to offer these services.”

As PYMNTS wrote last month, by refusing to take part in the plan, financial institutions are risking access to a fast-growing system that has moved billions of transactions and $1.5 trillion over the past five years (according to Zelle’s stats).

“The odds are that any rules embraced by the big banks will wind up being systemic,” we wrote. “The refunds would apply to only a few scenarios: where true fraud is in evidence and where customers have been misled into parting with funds, such as in cases of impersonation fraud where scammers pose as bank officials.”

However, refunds would not apply in cases where a customer pays for goods or services that were never tendered.

Meanwhile, recent research from PYMNTS shows that as faster payments like Zelle and Venmo has increased and become mainstream, so too have fraud-related issues. For example, 23% of peer-to-peer platform users have sent funds to the wrong person, and 15% have fallen victim to at least one scam.