Bank CEOs see Zelle as tool to fight fraud

The CEOs of the seven largest retail banks appeared before Congress today for the second of two days of hearings, defending the Zelle peer-to-peer payments network and assuring lawmakers that their institutions reimburse customers for unauthorized payments. One of the most animated discussions of the Senate hearing came when Sen. Elizabeth Warren (D-Mass.) pressed panelists on the number of fraudulent transactions through Zelle that customers have reported, to which the CEOs responded that the network had a much better track record than its nonbank competitors.

“Zelle is one of the P2P networks that you highlight,” William Demchak, CEO of PNC Financial Services, told Warren. “The others have 15 times the number of disputes coming into our company.” Figures from the Bank Policy Institute show that the rate of disputed transactions made using Paypal is three times that of Zelle, while the disputed transaction rate at CashApp is six times that of Zelle.

Unauthorized Zelle transactions account for far less than 1% of transactions, according to the CEOs. When it comes to authorized transactions to bad actors, Bank of America CEO Brian Moynihan noted there are systems in place to warn customers ahead of time. “I think last quarter or month we sent out 800 million notices: ‘Do you know this person that you’re sending (money) to?’ … And then this person still sends the money to the person who promises to send them something. That’s a difficult case, but we are working to make sure the receiver is disciplined and kept out of the system. And for that, we’ve had multiple institutions who won’t police their customer base not able to continue on Zelle.”

One message panelists sought to impart was that fighting fraud requires a broader effort. “We reimburse according to Reg E—we reimburse way beyond that,” said William Rogers, CEO of Truist Financial. “But as I said in my testimony, we also all need to focus on working together through partnerships—law enforcement, regulatory agencies—to actually catch the criminals who are perpetuating this fraud against our customers.” Watch a recording of the hearing.

Overdraft Services

Overdraft services were a frequent target for lawmakers during the two days of Congressional hearings on large-bank oversight. The seven CEOs noted their institutions had either eliminated overdraft services or offered non-overdraft alternatives. JPMorgan Chase CEO Jamie Dimon said most of his bank’s clients opt in because they understand the risk of missing a payment could be much more costly in the long run.

“I do think giving people a choice and letting them opt in or out is the proper thing to do,” he said. “It saves them a lot of suffering—they don’t bounce a check or something. For a lot of people, they get charged much more on the other side.”

U.S. Bancorp also provides an account option without overdraft services, said CEO Andy Cecere. Still, he added, “I think an important part of this is education and alerts to customers when they are entering a situation where they may overdraft and help them in advance with other alternatives, and that is something we are also focused on.”