As Americans flock to payments apps from PayPal, Square, and Zelle, rates of fraud are also rising according to app reviews, often with little support
Nathaniel Popper / New York Times : Tweets: @nytimes , @dgwbirch , @flitteronfraud , and @danawrey Tweets: @nytimes : “Fast payments equals fast fraud.” People are getting defrauded as they turn to Square's Cash App and PayPal's Venmo to do more online banking in the pandemic. https://www.nytimes.com/... @dgwbirch : “Payment apps have long had fraud rates that are three to four times higher than traditional payment methods such as credit and debit cards” https://www.nytimes.com/... Emily Flitter / @flitteronfraud : Payment apps have fraud rates that are 3-4 times higher than traditional payment methods like credit/debit cards. The pandemic has prompted many people to rely more heavily on them without realizing how vulnerable they are, @nathanielpopper writes https://www.nytimes.com/... Dan Awrey / @danawrey : When we shift to new ways of doing things, our lack of familiarity with them creates opportunities for the unscrupulous. Policymakers should not allow themselves to be blinded by the lights of new innovation https://www.nytimes.com/...
Context & Ripple Effects
The instant, zero-cost transfer model that payment startups used to unseat traditional cash-transfer firms in 2015's disruption wave is now the story's weak point: speed that made P2P apps convenient also made fraud cheap. By 2020, pandemic-driven adoption pushed Venmo and Cash App into everyday banking for millions, including the direct person-to-person giving that bypassed charitable institutions entirely.
This NYT report is the opening frame for a fraud-and-liability arc that runs through the corpus: by 2022, Zelle's bank backers were declining to reimburse defrauded customers, and Senator Warren's office found banks reimbursing only about 47% of them, before the CFPB warned in 2023 that app balances lack FDIC insurance — a regulatory sequence that begins with the fraud rates Popper documents here.
First-order effects
- Users moving everyday banking into Venmo, Cash App, and Zelle absorb fraud losses directly, with app reviews showing little support when scams occur — the apps' customer-service model was built for splitting dinner tabs, not dispute resolution.
- PayPal, Square, and Zelle face a trust problem at the moment of maximum adoption: the same review channels that document rising fraud now publicize it to prospective users.
Second-order effects
- The banks behind Zelle respond by drawing a liability line — arguing that returning money to scammed customers is not their responsibility — shifting the cost of instant payments onto users and inviting congressional scrutiny.
- Regulators move in behind the fraud data: the CFPB's warning that app balances sit outside FDIC insurance turns consumer protection into a competitive differentiator between apps and traditional banks.
Third-order effects
- If the pattern holds, instant-payment rails get pulled into the same consumer-protection perimeter as cards and bank accounts — forcing the industry to trade some of the speed and zero-cost economics that made it disruptive in the first place.
- Fraud liability becomes the structural battleground for P2P payments: whoever bears scam losses — app, bank, or user — shapes pricing, adoption, and whether these apps can mature from novelty into banking infrastructure.
The trend: Consumer payments are migrating to instant P2P rails faster than fraud liability and insurance protections can be assigned, leaving users as the loss-absorbers until regulators close the gap.