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In the United States, industry groups are raising the possibility of small banks and credit unions being unable to afford participation in P2P-platform Zelle because of its reimbursement plans for scammed customers. In recent weeks, the Wall Street Journal has been reporting that the group of big banks which owns the operator has been finalising a new approach when it comes to refunding customers at a loss from fraudulent activity. Zelle has quickly become a part of life for millions of Americans, having more than doubled its transaction levels between 2019 and 2021.
Given that banks have to be where their customers expect them to be, the total of participating institutions more than trebled to some 2,400 in that period. Now tests are underway to transfer money matching any ill-gotten funds to the affected customer's bank from the recipient bank. The latter institution, of course, is also an innocent party – but will ultimately be at a loss if the monies in question have already been withdrawn by the scammer.
Advocates for small banks argue that they currently cannot afford to customise Zelle, let alone take on the potential costs of reimbursement on the model that seems likely to be introduced. In September, Zelle handled its five billionth payment, bringing its first five years of existence to a close with a total transacted value of almost $1.5 trillion, according to its operator. More than 99.9 per cent of these were completed with no difficulty. The month before, Washington watchdog CFPB put pressure on the banking industry on payments fraud, with some seeing the potential for rulemaking in the area should the matter remain structurally unaddressed.
Meanwhile, in the United Kingdom, a potential remedy for the same problem is emerging from the public rather than the private sector as the Payment System Regulator (PSR) has announced new reporting rules for banks regarding push-payment thefts and misdirections. If anything, the problem is worse in this market: scams and fraud were responsible, in the first two quarters of 2022, for losses that came to almost a quarter of a billion pounds ($305m), with media reports of innocent victims now commonplace and the channel itself under a cloud as a result. The PSR is currently consulting with the industry on the technical aspects of the reporting process. Among other requirements, affected lenders will have to transmit data on measures they take to protect private users.
It may also be the case that some consumer education regarding account-to-account (A2A) transfers is called for on both sides of the Atlantic as the lay understanding of push payments is modelled on that of the highly evolved cards-scheme setups, in which a lot happens behind the scenes that the average shopper would be completely unaware of. The success of app-based A2A solutions may have fostered expectations that the P2P ecosystem as it is currently constituted is simply incapable of delivering.
To bring the anti-fraud piece up to a similar standard could involve introducing a deliberate delay or some extra process loops, but such interventions could well undercut the core proposition of A2A: simple, speedy transfers. For those untouched by fraud (the vast majority of users), such an outcome could severely hamper the method as a viable alternative.
Other stories of interest this week...
Australia: Westpac calls off Tyro Payments acquisition
Brazil: Central bank grants Google Pay payment-institution status
UK: Bank of England sets out plan to regulate cash distribution
US: Walmart fintech startup One to launch BNPL loans
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