Zelle and Venmo Security
Key Points:
- Peer-to-peer payment applications are growing in popularity because of their convenience.
- Fraudulent activity linked to peer-to-peer payment applications, such as Venmo and Zelle, is increasing rapidly.
- .The Consumer Financial Protection Bureau will likely require additional security to protect consumers from fraud.
These days, peer-to-peer payment applications let you move money about as quickly as you can spend it. Peer-to-peer payment applications are money transfer apps that act as a middleman to help users send or receive money between family members, friends, and businesses. The peer-to-peer app is connected to the user’s bank account, credit card, or debit card enabling money to be transferred instantly. Two of the most popular peer-to-peer payment applications are Zelle and Venmo.
However, the convenience that some of these person-to-person apps offer can also come with a risk. Some of the same qualities that make peer-to-peer apps so popular with consumers, most notably speed and convenience, also expose them to significant risks.
Unfortunately, the bad guys have figured out how to scam people out of money with these apps. The Consumer Financial Protection Bureau (CFPB) has reported many fraud complaints concerning peer-to-peer payment applications. This rise in complaints coincides with their increasing popularity, and the CFPB plans to push banks to cover more payment service scams.
What’s Going On With Applications Like Venmo And Zelle?
Many of us have gotten accustomed to using Zelle, Venmo, and other peer-to-peer payment applications to quickly and easily transfer money from our bank account to somebody else’s bank account.
Peer-to-peer payment services like Zelle and Venmo are convenient payment methods for many customers and businesses. Peer-to-peer payment apps also make it easy to split a check with a friend or to send money to a family member. For example, if you take a trip with friends, you can use an app to track what each person paid for during the stay and then determine who owes who what. The money is then easily transferred among friends using one of these apps.
Unfortunately, the problem is that you must know the handle or username of the person you wish to send money. If you get the wrong handle, you’re giving money to somebody else. And because there are no controls, you typically can’t get that money back from your bank.
When you use a credit card, in the case of fraud or a payment made in error, the bank holds you liable for no more than $50. However, peer-to-peer payment services typically offer little or no protection against scams.
For instance, your bank won’t reverse that transaction when you use a peer-to-peer payment app and pay for an item like a concert ticket but never receive it. Many of the complaints fielded by the CFPB complained of loss of funds due to fraudulent activity.
The bad guys have figured this out, and now they are attempting to exploit this weakness and scam consumers. Sophisticated scammers are using fake identities to compel people to send them money via a peer-to-peer payment app such as Venmo or Zelle.
Cybercriminals are doing this by sending fake bills or requests for money that look legit. Then when you wire that money or transfer it using your Zelle or Venmo app, you’re out of it, and there’s nothing the banks are required to do.
In one scam, the cybercriminal sends the victim a text message warning of a “fraud alert” concerning a pending payment which the victim is asked to confirm or deny. If the victim denies the transaction, they quickly receive a telephone call from someone claiming to be a bank representative and a number that seems to verify the call is coming from the bank.
The phony bank rep may say they noticed the possible fraudulent activity and want to help them secure their account. The victim is then asked for their peer-to-peer payment account credentials to prevent the unauthorized transfer. As soon as the victim provides their information, money is removed from their bank account.
Some experts say that fraud victims should be protected by the Electronic Fund Transfer Act (EFTA), the law that limits a consumer’s losses due to credit card fraud. However, most banks argue that they have no responsibility. They take the position that because the victim trusts the phony bank representative and actually does authorize the transaction, those transactions do not qualify as “unauthorized transactions” under the law.
The CFPB is responding to these complaints and saying they think there needs to be a speed break in the peer-to-peer payment process so that consumers are less likely to be scammed.
What Steps Will the Consumer Financial Protection Bureau Take?
Families and businesses benefit from quick, easy, inexpensive, and secure peer-to-peer payment services. As a result, online commerce and electronic payments have become the consumer’s standard expectations. Their use exploded during the pandemic as companies developed new products and business models to meet the demand.
One of the CFPB’s efforts within the Federal Reserve System is to make peer-to-peer payments safer. In October of 2021, they issued a group of directives to gather information on the business practices of technology companies operating payment systems in the United States. The information will help the Bureau understand how these firms manage user data access and use personal payment data to ensure consumers are adequately protected.
One of the things they are likely to do is implement requirements that force banks to confirm the identity of the people receiving the money. These requirements may include holding the money for 24 hours or a period to allow folks to figure out that they made a mistake and sent this to the wrong person.
Other possible requirements could include confirming a person’s identity using a second set of identity markers. A second confirmation of identity, such as a cell phone number, makes it much more secure to ensure that that transaction is legit.
Your Partner in Security
Protecting your data and other assets requires constant vigilance. At Alvarez Technology Group, we stay abreast of all security threats and keep you informed to ensure your security. Contact us today to learn more about protecting yourself when using peer-to-peer payment apps.
