INDIANAPOLIS – Financial experts are warning consumers about scams that are targeting peer-to-peer payment apps like Venmo and Zelle. 

Many of the scams start with a text message that appears to warn the consumer about a fraudulent bank transfer. The fraudster hopes you’ll reply. If you do, though, you’ll likely end up losing thousands of dollars. 

Seconds after you respond to the scam text message, you’ll get a phone call. The caller ID will look legitimate, as if it coming from the bank. The person on the other line will insist they need to secure your account. They’ll request personal information to “verify” you’re the account holder.

At that point, they’ll ask for your username. Behind the scenes, though, the criminal will use that and the “forgot password” feature to hack into your account. Because they have to get around two-factor authentication, the scammer will say something along the lines of, “I’m going to send you a code, read it to me over the phone.” From there, they’ll change the login information, break into your account and steal your money. 

It’s because of security concerns that financial experts are telling people to reconsider linking their payment apps to debit cards and bank accounts. 

“The convenience factor of linking a bank account is pretty high,” Joe Fitter, with the IU Kelley School of Business, said. “The challenge with that is that often times, there is no associated protection. What I recommend is that you link your credit card. That way, any transaction you make is a charge to your credit card. It might cost you a small percentage, but there are some protections the credit card will afford you. For example, fraud protection.” 

Fitter pointed out some services, like Venmo, will allow a person to store money within the app. That means you aren’t required to link it to a bank account.  

“Understand, though, that’s not a bank. As a result of that, there is no FDIC insurance,” he warned. 

Some apps, he said, offer buyer protection. That would mean, for example, if consumers purchased something but didn’t get what they bought, the app would give them a refund. One of the most popular payment services to offer this is PayPal. 

Recently, people have been reporting an increase in scams that targeted the Zelle app. Financial experts like Fitter think it has been hit especially hard because of how quickly Zelle transfers the money and because Zelle is advertised through banking apps. Fraudsters seem to know that. 

“Zelle is typically going to be directly linked to the bank account, so it’s not a third party. It’s a bank-to-bank transaction app. What often will happen is someone will send you money to your account from their account and they’ll contact you and say, ‘Oh, I’m sorry, I sent you money in error.’ You don’t know this person. You have never heard of this person. They’ll say, ‘would you please mind refunding me the money?’ And of course you’ll go in and be tempted to refund that money.”

Fitter continued, “What often happens is the money is deposited into your account, but it’s deposited only temporarily. Because the money was obtained fraudulently by the sender. You sent the refund, and that refund essentially cleans or cleanses that transaction. The refund goes into their bank account and they have already changed their information.”

There are four things consumers can do to protect themselves: 

  1. Know who you’re sending money to and who you’re getting payments from. If you notice anything suspicious, report it. 
  2. Don’t give out any codes or passwords to anyone. 
  3. If you are going to link a payment app to an account, use a credit card. 
  4. Read the fine print and know which apps offer buyer protection or some kind of insurance  

You can report any suspect scams to the Better Business Bureau and the state attorney general’s office