Zelle Scams at Top FIs Prompt Regulatory Attention–What Should FIs Do?

Consumers cry, but even corporate users can’t laugh.

Retail clients of top banks have been subject to fraudulent scams when using Zelle, prompting interest and inquiries from bank regulators. 

According to a Q1 SEC filing from Wells Fargo, government authorities have conducted formal and informal investigations into the management of fund transfer disputes through the Zelle Network.1 This news follows a similar announcement from JPMorgan in its 2023 Annual Report, which reported that the bank dealt with similar Zelle Network investigations.2 A major driver of these retail-level fund transfer disputes has been imposter scams that occur through Zelle.

To clarify, neither bank has been accused of misconduct or wrongdoing. However, this news does point to increased scrutiny from regulators looking to tie up loose ends and reduce consumer risk within commercialized digital payment offerings. In plain English, financial institutions (FIs) must sharpen up their practices or endure the consequences. 

Even though FIs are quietly returning money to their clients who suffered from fraudulent activity, government authorities will likely continue conducting inquiries or investigations regarding the handling of customer disputes related to fund transfers made through the Zelle Network. Regulators want to know how (and if) these institutions had placed sufficient measures to protect their clients’ accounts. 

The story seems to repeat itself: Anytime a bank relies on a fintech partner to increase its portfolio of services, it apparently fails to secure clear roles and responsibilities on how to manage critical and unexpected situations. It’s a bit ironic that the particular fintech that delivers Zelle is owned by the major U.S. banks. 

While this whole matter belongs to the FIs’ retail business, Datos Insights strongly recommends that FIs put protection measures in place for their corporate and wholesale clients. Failure to do so could result in costly financial impacts, increased regulatory bind-ups, and decreased satisfaction among commercial customers, all of which spell trouble for FIs and their fintech partners. 

Zelle Usage is High Among Corporate Users 

Datos Insights research shows that 27% of U.S. corporate users have used Zelle for business to make payments in 2023, with a solid 76% experiencing an increased adoption of the instrument in the past 12 months. Research data also allows Datos Insights to estimate that if a US$100M company uses Zelle for Business, 1.9 M of their revenue will move through that application. 

Moreover, 36% of U.S. companies intend to begin using Zelle for business this year or the next. The numbers at stake are significant for Fis, and they should consider placing proper controls to prevent critical situations.   

What Happens Next? 

U.S. lawmakers are pushing regulators and financial players to do more around Zelle scam prevention and customer support in the event of fraud, including making fraud policies more transparent. Regulators are already conducting investigations into the management of fraud disputes through Zelle at top U.S. banks, but it is unclear if more action is on the way.  

In the short term, FIs will likely increase the amount of Zelle education and training available for retail customers to increase scam awareness and mitigate the potential for nefarious action. Doing so can be equally effective for commercial customers using Zelle. FIs must also focus on improving their control and supervision more generally, such as incorporating enhanced protection measures for commercial customers, transparent fraud and anti-money laundering terms, and proper allocation of risk management duties between FIs and fintech vendors. 

I’m a Bank or FI—So What? 

FIs must consider regulatory control and supervision not as a nuisance or “unavoidable evil” but as direct guidance that helps them anticipate problems, secure customer engagement, and ensure business continuity. Customers are highly sensitive to the impact of fraud. A poor experience with their FI before and after fraud occurs could push them toward another institution. Proper regulatory adherence and fraud control address these issues before they occur.  

What happens in the retail world may serve as an alert for the more complex and convoluted commercial side of the business. Lessons learned on the one side must be captured and quickly adopted to avoid repeating the same mistakes. 

For more information on regulatory developments in the payments and fintech space, reach out to Enrico Camerinelli at [email protected] or Alijah Poindexter at [email protected]

  1. “Q1 2024 Form 10-Q,” accessed May 6, 2024, ↩︎
  2. “2023 Annual Report,” accessed May 6, 2024, ↩︎