ZELLE is an interesting initiative that may inform us about instant payments in Europe and how to be successful.

Instant payment is destined for a great and promising future. However, in Europe, where it is intended to counterbalance the dominance of credit cards, the difficulty is even greater, as we are faced, as always, with different and fragmented situations, complicating matters still further. The key to the success of an instant payment is not only its speed of execution (that's a pleonasm), but also its quality of execution, since it cannot be repudiated or contested after the fact.

Instant payment, promising future

Instant payment is destined for a great and promising future. However, in Europe, where it is intended to counterbalance the dominance of credit cards, the difficulty is even greater, as we are faced, as always, with different and fragmented situations, complicating matters still further. The key to the success of an instant payment is not only its speed of execution (that's a pleonasm), but also its quality of execution, since it cannot be repudiated or contested after the fact. Consequently, it is crucial to check that the beneficiary's account to be credited is indeed that of the latter, and not that of a usurping third party. The risk of fraud is the worst enemy of instant payment, and its success will depend on its reliability. So, it's easy to see why IBAN Name-check and LEI are being imposed as the universal European identifier for commercial entities and legal entities. The EU has succeeded in imposing the IBAN account format, so why not the LEI? As fraud is unfortunately on the rise, this IBAN Name-check is vital for all payments, whether instantaneous or not. Admittedly, it will once again be the bank's obligation to ensure perfect matching, but someone had to do it. Admittedly, some countries have succeeded in switching to instant payment via a country-specific identifier, such as a tax identifier. Without a European identifier, a non-resident will be penalized in comparison with a citizen of a given country, which is contrary to the spirit of the common market.

What about ZELLE in the US?

Legitimate questions for European are the following: Have we noticed fraud on ZELLE instant payment due to lack of account holder name check? How successful ZELLE is? What are the weaknesses identified?

Zelle is a peer-to-peer (P2P) payment platform in the United States that allows individuals to send and receive money directly between bank accounts. It was launched in 2017 and is owned by Early Warning Services, LLC, a consortium of major U.S. banks, including Bank of America, JPMorgan Chase, and Wells Fargo. Zelle, a popular instant payment platform in the U.S., has experienced rapid adoption but also faced scrutiny for certain vulnerabilities, including fraud. Zelle has become one of the largest peer-to-peer (P2P) payment platforms, rivaling Venmo and PayPal. In 2023, Zelle processed billions of transactions worth hundreds of billions of dollars annually. It is integrated directly with over 1,800 banks and credit unions, making it accessible to a wide audience without requiring a separate app in many cases. Zelle offers seamless integration within banking apps, allowing users to send and receive funds using only an email address or phone number. Payments are instantaneous and free for most users, making it highly competitive compared to wire transfers or cash apps.

Fraud Concerns with Zelle

We could list couple of problems noticed such as:

·?????? Lack of Account Holder Name Check: Zelle payments are often based on email or phone numbers without verifying the recipient's name against the account holder. Fraudsters exploit this by impersonating trusted contacts or businesses to trick users into sending funds. Because Zelle payments are nearly instantaneous and irreversible, recovering funds from fraudulent transactions is challenging.

·?????? Social Engineering Scams: Fraudsters use phishing or vishing techniques to impersonate banks or customer service to convince users to transfer funds or provide Zelle credentials.

·?????? Insufficient Protections: Unlike credit card transactions, Zelle payments do not have built-in consumer protections. The burden often falls on users to ensure they are sending money to the correct and trustworthy party.

·?????? Lack of Dispute Mechanisms: For unauthorized transactions, banks may assist under certain conditions, but there is no robust dispute mechanism comparable to credit cards.

Therefore, there are obvious weaknesses Identified in Zelle, like the trust Issues. The platform has faced criticism for a high volume of fraud complaints. Reports suggest some banks initially resisted compensating customers for scams involving Zelle. There are issues with awareness and education. Many users are unaware that Zelle is designed primarily for trusted transactions (friends, family, and verified businesses). This leads to misuse in situations where traditional payment methods might be safer. Unlike PayPal, Zelle does not offer an escrow service or similar protection for buying and selling goods/services. There is also limited Cross-Bank Standardization. Fraud prevention and reimbursement policies vary between participating banks, leading to inconsistent experiences.

Last (and recent) issue with ZELLE

Recently the US Consumer Financial Protection Bureau has sued JPMorgan Chase, Bank of America and Wells Fargo for allegedly failing to protect customers from fraud on payments platform Zelle. The CFPB accused Zelle and the three banks of having only limited methods to verify identities, allowing bad actors to move between banks, ignoring warnings that could have detected fraud and abandoning customers after they had been scammed. These three banks received fraud complaints from more than 900k customers, the lawsuit alleged. Launched in 2017, as a peer-to-peer payments system to make instant money transfers, became popular among users, but also for scammers because of the speed of transactions. These scammers trick customers into sending money in so-called authorized push payment fraud. Schemes include romance scams and the impersonation of government officials. As it was backed by the banks, people thought it was secure. Unlike contested debit and credit card transactions, the rules for reimbursement of account-to-account payments are less clearly defined in the US than in other countries. We will see the outcome of this lawsuit, which appears to be driven by political factors unrelated to Zelle.

Conclusions we can draw from these initiatives of instant payments

Zelle’s success lies in its integration, speed, and convenience, making it a major player in the P2P payments space. However, its weaknesses, particularly related to fraud and lack of account verification mechanisms, highlight the need for additional safeguards. Addressing these issues will require tighter security measures, consumer education, and standardized bank policies to maintain trust in the platform. We think that adopting LEI for IBAN Name-check is a wise decision, even if it will be understandably complicated to implement on the banking side. At a time when some are questioning the predominance of American credit cards and the lack of supervision, we need to make instant payment a real success and an effective alternative, which will change the lives of citizens, but also of treasurers of companies active in B2C. The fight against fraud must be an absolute priority for any initiative to protect individuals and companies. But instant payment is and will be an important element of “real-time everywhere”. We're already in January 2025, the date set for preparing to receive instant payments, and we'll soon be on October 9th 2025, the date set to ensure consumers and corporates can send instant payments.

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Fran?ois Masquelier, CEO of Simply Treasury – Luxembourg? January 2025

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