In 2009 I met some Israeli developers in Atlanta who were trying to get meetings with some of the banks in the area (there are a number of corporate bank offices here for big banks) to hawk their direct payment system, which was exactly what Zelle is. I contracted with them and got them some meetings, I was basically a rent-a-laowai for them to get meetings here. I never heard what happened to them after that, and when Zelle came out, I was sad to see the exact same idea but from a totally different company.
But the core concept is digital cash, so you HAVE to treat it as such.
Well, unlike PayPal with had been around for years, this was basically SWIFT for the US, which is kind of what Zelle is. From what I heard the big problem they faced was banks couldn't see how to monetize it.
It's not just fraud you need to worry about. Here's a horror story for you. A few years back I was moving to a city for graduate school and needed to rent an apartment. A friend of mine toured the place and when we decided to rent the landlord asked if we could send him the security deposit using Zelle. I sent the deposit using his contact information, but he never received it.
I spent three weeks being passed back and forth by one bank being told I needed to speak with they other bank. They confirmed the money had been debited from my account, and confirmed it was not deposited in his, but nobody could tell me where the money went. I called Zelle multiple times, but all they would tell me is I needed to talk to the banks. Eventually after three weeks the money was quietly returned to my account with no explanation. After a bit more digging it appears my transaction triggered some fraud alert, but neither myself, the depositor, or either bank was notified of this.
To add insult to injury, during this process the people in charge of Zelle at my bank (which rhymes with Space) told me I was out of luck, because using the Zelle for any type of commercial transaction, including sending rent or security deposits, is against the terms of service. Looking back over the terms of service I found they were 100% correct.
I also found that Zelle is basically just a front-end for the existing ACH Direct Deposit system. It was created by a consortium of banks to compete with services like Venmo, but it at it's core a very different service. Venmo actually provides value by acting as a middle man: Venmo pays the recipient and collects the money from me. Zelle is just a way to send money directly to someone's checking account, but by using their email address or phone number instead of the account and routing number. This is why there is absolutely no recourse if anything goes wrong.
I use Zelle all the time but with people I know. In fact, I can't remember where my check book is. I use Apple Pay all the time and I use an actual credit card about once a month. I use cash at one place, my taco truck of choice. And for the record, I've never touched bitcoin.
I've used PayPal and Venmo but I don't see their utility now and prefer Apple Pay.
All of these modern tools have their benefits and risks. I got burned for $40 on Zelle for a bike part. It was a $40 lesson.
Agreed. I'm being hyperbolic when I say "do not ever use Zelle". I'm sure it's fine for passing money between friends. It's just that my version of the $40 lesson had a few more zeros on the end, and so stings a bit more.
For me I only use Venmo because that's what most people in social circles use. If they used Cash App or Apple Pay, I'd use those instead.
BTW, the solution for problems like this is complain to CFPB. Banks are afraid of CFPB and complaint will help solve problems.
Zelle has their own instant transfer system, and banks settle up overnight. My understanding is that there isn't ACH transaction for each transfer. Banks have less visibility into Zelle.
I hope FedNow kills Zelle. That should be better integrated. I think Venmo and other payment apps will stick around cause offer useful app.
Thanks, but I don't think I know enough about this to speak about it on the pubic record. My experience is based on remembering what random customer service reps said a few years ago and a bunch of reddit and forum posts. For example, I don't know if Zelle is literally just direct deposit--if it was how did they freeze my transaction for 3 weeks?
But I do get the sense that of all the payment platforms, Zelle is uniquely risky because of the way it's set up. I do with a journalist would look at it from that angle rather just from the "wow there's a lot of fraud here". It seems to be that the banks are incentivized just to get have this product out here to undercut the competition from digital payment platforms, but have absolutely no incentive to make it a functional or safe platform.
> I also found that Zelle is basically just a front-end for the existing ACH Direct Deposit system. [...]
>
> tl;dr do not ever use Zelle.
I can't figure out how to do ACH transfers to friends with my credit union, and I've been told Zelle is the solution for that. I guess I should stick to Venmo?
In the US, Zelle vs. Venmo is comparable to debit card vs. credit card. With Zelle/debit, you're basically mailing cash - it might get lost in transit, your money is gone right away. With Venmo/credit, there's a middleman with a big pile of cash that assumes the risk of money being in-flight, and usually eats fraud/errors as a cost of doing business in exchange for selling data about your spending to advertisers.
I agree that at some point people need to take some responsibility for being scammed. However, it seems that Zelle is engineered in the perfect way to help scammers.
It is as though a committee of engineers and consultants sat together and said "How do we create the perfect vehicle for as many different types of scams as possible?"
- Maybe! instant settlement
- No standardized audit trail
- No way to know who's really on the other side
- Send money into the void
- 2FA but not really
- No standardized audit trail
- No way to know who's really on the other side
I think these 2 are the biggest ones. You put in someone's phone number / email, and you get maybe an associated name as reassurance. How do I know it's actually associated with an account the person I'm trying to pay has access to?
Ideally you know that because banks have KYC (Know Your Customer). And Zelle accounts must be populated by a bank. Individuals cannot just create a Zelle account. They must open an account with a bank -- and thereby undergo KYC -- who then creates their Zelle account.
The common Zelle scams I've heard of rely on how Zelle doesn't work like cash. It is possible to reverse Zelle payments, but only in very specific circumstances like compromised bank creds. So the scammer will manipulate you into giving a clean, irreversible payment in exchange for a dirty one that later gets reversed.
It's also a lot easier to send like $5K to some faceless entity with Zelle than with cash.
For anyone extolling the virtues of credit cards as the ultimate payer-friendly solution, my "exhibit A" is a vendor who charged my card and then put a freeze on actually shipping the product. Then they tried calling me while my phone didn't have a signal. Then they sent me an email saying their "verification" department couldn't reach me and to let them know when they can call. I replied telling them when they could call. They didn't call.
So I called them and sat on hold until someone finally picked up and told me that my order was flagged for some reason. After I confirmed my address (?), they seemed to confirm my order and then hung up. I still haven't gotten any confirmation that my item shipped yet.
In general I try to avoid ordering from Amazon, but if I had done that instead, I would have my item in my hands right now. Instead I had to waste my time playing phone tag, and I'm still wondering whether or when they'll actually ship my item. All because the vendor is apparently super-averse to credit card fraud and would rather push me to Amazon for future purchases than take whatever chance they'd be taking by sending me what they've already charged me for.
I'll have to be calling them again after the weekend to see if they've actually sent it. If they haven't, I'll tell them to cancel my order. And then I'll have to wait for them to refund the charges. If they don't, then I'll have to make another call to my bank to reverse the charges.
All the while, I still don't have my item. So if you don't pay for fraud in lost cash, you're definitely paying the overhead of vendors trying to avoid being "stuck holding the bag" by throwing arbitrary verification processes in your face, introducing delays and possibly leading to you needing to make multiple phone calls to resolve problems while being left without the thing you need.
Now and then someone "hacks" my pathetic Javascript shopping cart to buy software for $1 instead of the usual price. I just send them an email with a balance due for the rest of the purchase price. Never hear from them again.
I accepted credit cards for many years until I was subjected to repeated "carding" attacks. The credit card processor blamed me for them, and was unable to tell me how to avoid such attacks. My solution was to not accept credit cards anymore.
This is a really good story to highlight how good credit cards are for this situation. It’s totally reasonable for a vendor to freeze shipping via credit card purchase until they’ve received confirmation they will be paid. Basically modern escrow. Sorry you seem to have been caught up in a rare edge case, I’ve been in the same situation, but am super happy that the system makes 99% of payments totally frictionless unless occasionally I’m traveling abroad (or ordering abroad) and they have additional checks.
> It’s totally reasonable for a vendor to freeze shipping via credit card purchase until they’ve received confirmation they will be paid.
Exactly, but I come to the stellar opposite conclusion than you do in this scenario. I would much rather have used a payment mechanism with this vendor that immediately and finally transferred the funds so that I get my item more quickly without playing 3 days of phone tag. BTW, this is a large and established vendor that I trust. You have likely ordered something from them in the past.
What part of that is the fault of using a credit card? I'm extra confused since Amazon came into this, where you distinctly are able to use credit cards?
With a credit card, you have the fallback of chargebacking. That's the benefit. You haven't gotten to that stage, although you certainly could have escalated to there by now.
> What part of that is the fault of using a credit card? I'm extra confused since Amazon came into this, where you distinctly are able to use credit cards?
Amazon, to my knowledge, will not charge you and then throw you into a "pending verification" quagmire.
But I would imagine most vendors don't want you ordering from Amazon. My point is that when I make an effort to order from another vendor when I could just order from Amazon, that vendor should introduce exactly zero friction to the process in order to be competitive.
"Pay before the item ships" is nearly ubiquitous online even if you used Paypal or a debit card or whatever. Maybe if you'd used a method like that they'd not even be pretending to think about sending your item, vs just pocketing your cash.
I'm not sure "vendor is so paranoid about fraud because credit cards are too consumer friendly, thus credit cards aren't payer-friendly" follows from this story more than "vendor is just acting in bad faith."
What part of Zelle isn't safe, fast, and convenient, that is actually scoped under Zelle's responsibilities? Zelle is for moving money from bank account A to bank account B - that's where its responsibilities end.
I'm fine if a payment method is escrow-free and non-reversible, and I'm told that upfront. Oddly enough, that's like a rare luxury. Even Zelle is only half that: authorized payments are never reversed (i.e. they don't act as an escrow), but unauthorized ones (hacked account, etc) can be.
This is posted somewhere, but I also tested it myself. Previous landlord had stolen my security deposit. I went to my Chase branch and called several different numbers trying to reverse the final month's rent, which had been Zelle'd. After initially getting the half-truth that payments cannot be reversed, I found the right person who asked sternly if the payment was unauthorized, saying I could reverse it if it was. I had to say no. So no dice, I had to go sue the landlord instead.
Readit News
But the core concept is digital cash, so you HAVE to treat it as such.
And really this was the original idea for PayPal, dwolla, and lots of other digital cash payment systems.
Deleted Comment
I spent three weeks being passed back and forth by one bank being told I needed to speak with they other bank. They confirmed the money had been debited from my account, and confirmed it was not deposited in his, but nobody could tell me where the money went. I called Zelle multiple times, but all they would tell me is I needed to talk to the banks. Eventually after three weeks the money was quietly returned to my account with no explanation. After a bit more digging it appears my transaction triggered some fraud alert, but neither myself, the depositor, or either bank was notified of this.
To add insult to injury, during this process the people in charge of Zelle at my bank (which rhymes with Space) told me I was out of luck, because using the Zelle for any type of commercial transaction, including sending rent or security deposits, is against the terms of service. Looking back over the terms of service I found they were 100% correct.
I also found that Zelle is basically just a front-end for the existing ACH Direct Deposit system. It was created by a consortium of banks to compete with services like Venmo, but it at it's core a very different service. Venmo actually provides value by acting as a middle man: Venmo pays the recipient and collects the money from me. Zelle is just a way to send money directly to someone's checking account, but by using their email address or phone number instead of the account and routing number. This is why there is absolutely no recourse if anything goes wrong.
tl;dr do not ever use Zelle.
I've used PayPal and Venmo but I don't see their utility now and prefer Apple Pay.
All of these modern tools have their benefits and risks. I got burned for $40 on Zelle for a bike part. It was a $40 lesson.
For me I only use Venmo because that's what most people in social circles use. If they used Cash App or Apple Pay, I'd use those instead.
an employer’s direct deposit system, at a third party payroll company asked me for a voided check
I photoshopped my bank account and routing number on a stock image of a voided check
I get paid no problem. dumb process.
Zelle has their own instant transfer system, and banks settle up overnight. My understanding is that there isn't ACH transaction for each transfer. Banks have less visibility into Zelle.
I hope FedNow kills Zelle. That should be better integrated. I think Venmo and other payment apps will stick around cause offer useful app.
You've got a lot of details in there that are definitely not common knowledge and would be of wide interest.
But I do get the sense that of all the payment platforms, Zelle is uniquely risky because of the way it's set up. I do with a journalist would look at it from that angle rather just from the "wow there's a lot of fraud here". It seems to be that the banks are incentivized just to get have this product out here to undercut the competition from digital payment platforms, but have absolutely no incentive to make it a functional or safe platform.
I can't figure out how to do ACH transfers to friends with my credit union, and I've been told Zelle is the solution for that. I guess I should stick to Venmo?
Deleted Comment
It is as though a committee of engineers and consultants sat together and said "How do we create the perfect vehicle for as many different types of scams as possible?"
Once you give it, you can't demand it back without courts.
It's also a lot easier to send like $5K to some faceless entity with Zelle than with cash.
So I called them and sat on hold until someone finally picked up and told me that my order was flagged for some reason. After I confirmed my address (?), they seemed to confirm my order and then hung up. I still haven't gotten any confirmation that my item shipped yet.
In general I try to avoid ordering from Amazon, but if I had done that instead, I would have my item in my hands right now. Instead I had to waste my time playing phone tag, and I'm still wondering whether or when they'll actually ship my item. All because the vendor is apparently super-averse to credit card fraud and would rather push me to Amazon for future purchases than take whatever chance they'd be taking by sending me what they've already charged me for.
I'll have to be calling them again after the weekend to see if they've actually sent it. If they haven't, I'll tell them to cancel my order. And then I'll have to wait for them to refund the charges. If they don't, then I'll have to make another call to my bank to reverse the charges.
All the while, I still don't have my item. So if you don't pay for fraud in lost cash, you're definitely paying the overhead of vendors trying to avoid being "stuck holding the bag" by throwing arbitrary verification processes in your face, introducing delays and possibly leading to you needing to make multiple phone calls to resolve problems while being left without the thing you need.
I accepted credit cards for many years until I was subjected to repeated "carding" attacks. The credit card processor blamed me for them, and was unable to tell me how to avoid such attacks. My solution was to not accept credit cards anymore.
Long live the virtues of credit card payments!
Exactly, but I come to the stellar opposite conclusion than you do in this scenario. I would much rather have used a payment mechanism with this vendor that immediately and finally transferred the funds so that I get my item more quickly without playing 3 days of phone tag. BTW, this is a large and established vendor that I trust. You have likely ordered something from them in the past.
With a credit card, you have the fallback of chargebacking. That's the benefit. You haven't gotten to that stage, although you certainly could have escalated to there by now.
Amazon, to my knowledge, will not charge you and then throw you into a "pending verification" quagmire.
But I would imagine most vendors don't want you ordering from Amazon. My point is that when I make an effort to order from another vendor when I could just order from Amazon, that vendor should introduce exactly zero friction to the process in order to be competitive.
I'm not sure "vendor is so paranoid about fraud because credit cards are too consumer friendly, thus credit cards aren't payer-friendly" follows from this story more than "vendor is just acting in bad faith."
> Are they getting a cut of every dollar I spend?
They aren't.
Dead Comment
This is posted somewhere, but I also tested it myself. Previous landlord had stolen my security deposit. I went to my Chase branch and called several different numbers trying to reverse the final month's rent, which had been Zelle'd. After initially getting the half-truth that payments cannot be reversed, I found the right person who asked sternly if the payment was unauthorized, saying I could reverse it if it was. I had to say no. So no dice, I had to go sue the landlord instead.
Sounds to me some big banks and fintech got their lobbyists to stick it to Zelle.