The rise of financial apps has made sending cash easier than ever. CashApp, Paypal, and Venmo have made it possible to transfer cash from one person to another instantaneously. Instant financial transactions impose small fees. Venmo charges 1.75% for instant transactions and CashApp charges between 0.5%-1.75%. Standard transactions that take a day or more can be made free of charge. Peer to peer financial transfer services like these are a major threat to the banking industry so the big banks developed their own digital system for digital payment transfers called Zelle. Zelle is the big banks answer to the rise of digital payment apps. Zelle is expected to process over 2 billion transactions this year alone.
What is Zelle exactly?
Zelle is owned by a fintech company called Early Warning Services LLC. This limited liability company is a private financial services company that was originally started by three megabanks and is now owned by seven banking giants including Bank of America, JPMorgan Chase, Wells Fargo, Capital One, PNC, US Bank, and Truist. Zelle allows bank customers to transfer funds to other member banks in the Zelle network free of charge. You can instantaneously send money to another big bank customer free of charge. Zelle is so popular now that nearly 2,000 financial institutions are enrolled in the service. The creation of Zelle was a smart move by the banking institutions to keep us tethered to traditional checking and savings accounts. Banks promote Zelle because they benefit from Zelle.
You can enroll in Zelle by simply registering an email address or phone number and you can transfer money to other registered users. Most banks allow you to transfer a maximum up to $5,000 in a day. Some banks like Chase and Bank of America cap the limit at $2000 and $3500 a day respectively. Monthly limits typically fall between $10,000-$20,000. Small business and private bank customers can send $15,000 – $25,000 a day at most banks.
While I love using Zelle and even use it to transfer money between my own bank accounts at different banks; Zelle does have inherent risks. Instant money transfer services are incredibly attractive to scam artists. Peer to peer payment scams are on the rise. While we are working hard to make money; scammers are working hard to trick us out of this money. Zelle users were tricked out of $213.1 million dollars last year and that number is expected to be even higher this year. Scammers fraudulently work to get bank customers to authorize Zelle transactions. They impersonate bank employees aiming to help you “protect” your bank account from unauthorized transactions. They wipe out your account as soon as you give them your email address, phone number, and bank information. Some scammers go as far as impersonating legitimate creditors who are “authorized” to take payments via Zelle. They pretend to be credit card companies, utility companies, auto loan companies, and only creditors who need an immediate payment via Zelle.
The problem with Zelle transactions is that they are not cancelable and are very rarely every reversable. For all intensive purposes, once you send the money; it’s gone. This is why you need to be sure you are sending money to the right registered user or your money is gone forever. There is no worse feeling than discovering you have sent $1,000 to the wrong person and have no recourse for getting your money back. Banks are no help in these situations. In bank and credit card cases involving fraudulent transactions, banks are quicker to reimburse customers. Zelle offers no fraud protection whatsoever. Only 3 percent of individuals received their money back in all Zelle fraud cases nationwide.
Zelle is not alone in offering no fraud protections. The same risks are inherent in Venmo and CashApp well. Any service that sends money instantaneously will have these the same issues.. In order to protect yourself, never give out any details concerning your financial information to anyone. Do not trust anyone with your bank account information. It is also a smart idea to limit the dollar amount of the transactions that you use on Zelle. I try to never transfer more than $100 at a time. This way if the money goes to the wrong recipient, I have only lost $100 and not thousands of dollars at a time. Bank to bank transfers with fraud protection are best for larger dollar transfers.