Dive Brief:
- Manhattan District Attorney Alvin Bragg this week sent open letters to the owners of peer-to-peer payment apps Cash App, Venmo and Zelle. In the letters, the DA asked the companies to provide better consumer protections against scammers, according to a Tuesday press release.
- Fraudsters are finding new ways to steal money via P2P apps, Bragg said in the letters. One scam involves getting access to an unlocked smartphone, then using a P2P app to transfer large amounts of money from a victim’s account.
- “No longer is the smartphone itself the most lucrative target for scammers and robbers – it’s the financial apps contained within,” Bragg said in the release.
Dive Insight:
The Manhattan DA did not provide details on the number of people that have been targeted by the scams, or how much money had been fraudulently transferred. In the letters, he simply cited “a growing number of incidents in the New York City region” as well as incidents in Los Angeles and Orlando.
To help thwart these types of thefts, Bragg recommended the apps adopt measures such as multi-factor authentication as a default, imposing transaction limits and monitoring suspicious transactions as credit card companies do. Additionally, Bragg ended each letter with a request to meet with each of the companies to discuss his concerns.
Bragg joins Democratic Sen. Elizabeth Warren of Massachusetts in his concern about rising fraud on P2P payment apps. In an October 2022 report, Warren noted rising complaints of fraud on Zelle, which enables account-to-account transfers. The report found that four big banks using Zelle received scam and fraud claims exceeding $90 million in 2020.
Congress amending the Federal Electronic Funds Transfer Act would be the most effective solution to address payment app fraud, said Consumer Reports Programs Director Chuck Bell. However, he isn’t expecting a swift response from lawmakers. “I am honestly worried that it may take three to five years of continued losses for customers before there's going to be action,” Bell said in an interview.
Cash App, Venmo owner PayPal and Zelle operator Early Warning Services all defended their practices in emailed statements.
“We work proactively and diligently to safeguard our customer’s money and mitigate against the risk of fraud on our platform through a combination of preventative controls,” a Cash App spokesperson said in a Wednesday email. Cash App is a unit of the company Block.
“PayPal and Venmo take the safety and security of our customers and their information very seriously,” a PayPal spokesperson said in a Wednesday email. “We have several options in place to enable enhanced layers of security and protection directly within our apps.”
“As a result of our continued efforts to build on Zelle’s strong foundation of security, less than one tenth of one percent of transactions are reported as fraud or scams, and that percentage keeps getting smaller,” a spokesperson for Early Warning Services said in a Wednesday email.
A spokesperson for Bragg’s office didn’t immediately respond to questions about Tuesday’s letters.
