P2P (person-to-person) payment apps allow consumers to send money directly from their bank accounts to each other. Some P2P apps are integrated into banks, which offers better security. Zelle is one of the most popular P2P apps and is used by Bank of America and US Bank. P2P apps can send money and receive money within minutes, compared to a few days with other methods such as ACH or mailing a check.
P2P apps are not credit or debit cards. They do not offer the same level of protection as credit or debit cards and are processed differently. The speed of transactions (i.e., a few minutes) also don't allow enough time to detect fraudulent transactions.
Zelle is a fintech and stand-alone company. The name Zelle is a trademark of Early Warning Services, LLC. Consumers cannot use Zelle by itself. They must use a partner bank, which means either logging into the bank's website or mobile app. However, the same cannot be said about other P2P apps, which leave consumers vulnerable.
Two such P2P apps that are putting consumers at risk are Square’s Cash App and PayPal’s Venmo. Both are popular with consumers. Neither app publishes fraud data but a recent New York Times article brings to light how scammers are exploiting these apps. From the article, one P2P app user recounts her fraud experience with Square's Cash App:
Charee Mobley, who teaches middle school in Fort Worth, Texas, had just $166 to get herself and her 17-year-old daughter through the last two weeks of August.
But that money disappeared when Ms. Mobley, 37, ran into an issue with Square’s Cash App, an instant payments app that she was using in the coronavirus pandemic to pay her bills and do her banking.
After seeing an errant online shopping charge on her Cash App, Ms. Mobley called what she thought was a help line for it. But the line had been set up by someone who asked her to download some software, which then took control of the app and drained her account.
There are actually two issues that led to the fraud in this case, but they are common across consumers. One problem is consumer security education. Consumers who are educated about online security and potential fraud know not to click on unknown links sent directly to them (by text or email). The other issue is scammers' ability to exploit the P2P apps' interface (i.e., requesting money from a fraudulent email).
Traditional debit or credit cards don't allow requesting funds by email, which makes them more secure. Unfortunately, P2P apps have fraud rates that are three to four times higher than debit or credit cards, according to data from firms Sift and Chargeback Gurus.