P2P Payments Fraud Suggests Liability Gray Area

Peer-to-peer (P2P) transactions between bank accounts are gaining in popularity, evidenced by the triple-digit percentage gains in Zelle and Venmo volumes, due in part to faster payment rails.

The flip side to this consumer love, however, is the increase in fraudsters slipping in to impersonate both individuals and businesses, leaving consumers flummoxed if something goes sideways, PYMNTS reported on Tuesday (July 12).

Cybercriminals have become more adept at exploiting the instant, irrevocable nature of P2P transactions, while consumers are increasingly confused over banks’ positions regarding refunding their money if it ends up in the wrong hands.

See also: ​​Law Firm Probes Zelle’s Unauthorized Fraud Reimbursement Position

“There’s still a bit of education that needs to be administered in the banking industry to keep reminding consumers of their liability,” Ingo Money CEO Drew Edwards told PYMNTS Karen Webster.

According to the Federal Trade Commission (FTC), losses from consumer scams went up an estimated $6.1 billion last year compared to 2020’s $3.4 billion in losses. By the end of the first quarter of this year, losses topped $1.7 billion.

Read more: Class-Action Lawsuit Dropped Against Wells Fargo, Zelle

P2P scams vary from romance cons and counterfeit goods to university classes and training that don’t exist. In these types of cases, if the consumer authorized the money transfer, the bank or FinTech is not obligated to issue a refund.

Edwards told PYMNTS P2P is now a “sender beware model” that includes built-in prompts to help ensure the sender knows that the transaction is irrevocable. Senders are also reminded to double-check the recipient’s information.

Related: Banks Resist Refunds for Unauthorized Zelle Payments

P2P transactions are similar to when a person writes a paper check but mailed it to a fraudster or sent a wire transfer to a criminal, Edwards said. If the funds are cleared, the responsibility is on the sender.

“Why should P2P be any different,” Edwards asked rhetorically, per the PYMNTS interview. “Simply put, if the funds are sent to the wrong person but the bank was told to do it — well, then, that’s the sender’s problem.”

There’s a murky area when a consumer’s bank account credentials have been compromised by a third party when access was allowed but the information was used to commit fraud. Use of those credentials was unauthorized by the consumer but authorized for use by that third party.

“Is that an open checkbook for third parties, FinTechs, to be less rigorous about their own know your business (KYB) and fraud systems and protocols?” Webster asked.

Edwards admitted it’s rocky terrain but someone — not the customer — should be responsible, even the bank.

“No one would use a credit or debit card if there weren’t capped liabilities that essentially keep the cards from being passports to empty bank accounts,” Edwards said.