Frank Takes: As Zelle Grows, Fraud and Scams Exposure is Up Too

Fraud scam exposure growing

Frank Takes is a quick summary of insights and findings from the popular industry blog Frank on Fraud, written by renowned fraud expert Frank McKenna, co-founder and Chief Fraud Strategist at Point Predictive. 

Zelle saw a significant surge in payment volumes in 2023, with consumers and small businesses conducting 2.9 billion transactions totaling $806 billion—a 28% increase from the previous year. While this growth underscores Zelle’s popularity and its reputation as one of the safest P2P services compared to Venmo and CashApp, it also raises concerns about the corresponding rise in fraud and scam exposure. 

Rising Fraud and Scam Exposure 

Estimations indicate that fraud and scam exposure on Zelle reached $725 million in the past year, up from $440 million in 2021. This increase reflects the broader impact of Zelle’s growth on consumers, who often bear the brunt of these losses. 

Zelle’s Reported Risk Metrics 

Zelle’s data from 2021 revealed that consumers sent $490 billion through the platform, with an estimated $440 million lost to fraud and scams, equating to about nine basis points of total fraud and scams. Zelle claims that its platform is 99.9% fraud-free, and these self-reported numbers support this assertion. 

Calculating Annual Losses 

With $806 billion in payments processed on Zelle last year, the total fraud and scam exposure is estimated at $725 million annually. This 65% increase from the previous estimate of $440 million in 2021 highlights the growing financial impact of fraud on the platform. To arrive at this figure, the total payments are multiplied by the average fraud rate across all transactions. 

Comparing Zelle to Other P2P Services 

Despite the rise in fraud, Zelle remains safer than competitors like Venmo and CashApp. In 2018, Venmo reported a fraud rate increase to 40 basis points from a baseline of 25 basis points. This suggests that Venmo’s fraud rate could be two to four times higher than Zelle’s. While Zelle’s fraud rates are concerning, they are relatively low compared to other P2P options. 

Fraud Rates Compared to US Card Fraud 

Zelle’s nine basis points of fraud and scam losses are manageable for most banks. However, when compared to US card fraud loss rates, which are around seven basis points annually, the situation appears less favorable, especially since consumers often bear these losses. 

Zelle’s Optimism and Initiatives 

Zelle is optimistic that fraud and scam rates will decline. They report a reduction in fraud percentages due to a layered security approach, including services like Risk Insights for Zelle, which provides network participants with real-time information to assess potentially high-risk transactions. In 2023, Zelle’s Early Warning financial institutions cautioned users more than 700 million times before making payments, aiming to curb fraud and scam incidents. 

Please note that any opinions expressed in this piece are solely those of the individual author and do not necessarily reflect the views or opinions of the company. For the full article, visit Frank on Fraud