Zelle Chargeback Guide for Merchants in 2024
As someone who sells things over platforms like Facebook Marketplace, I’ve considered used Zelle as a P2P processor.
Here is my experience with how they handle chargebacks.
Let’s dive in.
Key Takeaways
- Customers can only file chargebacks for fraud cases on Zelle.
- Zelle doesn’t have a dispute or chargeback process.
- Zelle (and banks) don’t see fraud and scams as the same.
Does Zelle Even Have Chargebacks?
Zelle does not have chargebacks or a dispute process. They offer no buyer or seller protection. If a customer experiences fraud, they can do a chargeback through their bank or card network.
I’ll discuss these points later.
If you’re a business considering using Zelle for your business, you should reconsider. As it’s meant for peer-to-peer (P2P transactions). It would only work well if you were selling items over Facebook Marketplace or similar products.
Okay. Why doesn’t Zelle have chargebacks?
Summary: Customers can only file chargebacks through their bank for fraud.
How Zelle Sees Chargebacks
None of the transactions are made through bank cards. Since no credit cards are involved, it doesn’t have protection from the Fair Credit Billing Act. It’s also not covered by Regulation E, which is part of the Electronic Fund Transfer Act [1].
This set of rules typically protects customers from fraud for funds transferred electronically.
Funds are transferred electronically through Zelle. Thus, it would fall under Regulation E protections. But we’ll need to know how Zelle views scams and fraud.
Summary: Banks will protect customers from fraudulent purchases.
Frauds vs. Scams on Zelle
In short:
- Fraud: Unauthorized purchase; customers can dispute transaction
- Scam: Authorized purchase; buyer can’t dispute
Say the customer experiences fraud. Meaning, someone (who’s unauthorized) uses the customer’s account for a purchase. Then, the customer could file a chargeback with their bank.
Here’s an example in case you don’t get it.
A fraudster hijacks a customer’s Zelle account and makes a purchase. The customer later realizes that someone stole their account and files a chargeback.
Zelle will also label an “unauthorized” transaction of them accidentally sending $1,000 instead of $1.00. Since the customer didn’t authorize such a purchase.
If the customer was scammed, they can’t file a chargeback. Because they voluntarily authorized the transaction. Though, the scammer tricked them.
Considering you’re not a business that will scam customers, you shouldn’t need an example of a scam.
Regulation E only covers unauthorized (fraudulent) transactions.
In 2023, Zelle began offering Risk Insights.
It’s a free service that helps banks identify potentially risky transactions on the Zelle Network. It provides real-time information about recipients, allowing banks to assess the risk level of a transaction. From there, they take action to prevent fraud and scams by canceling it (if it’s suspicious).
I couldn’t find any information determining the triggers. You should know about this program, though, in case a bank accidentally flags your transaction as fraud or a scam.
Summary: Chargeback protections cover fraud and not scams.
How Does Zelle Deal with Friendly Fraud?
Friendly fraud is a form of chargeback fraud where one of the following scenarios happens:
- Unintentional: Acquaintance with access to the account makes unauthorized purchases.
- Intentional: Accountholder makes a purchase but later regrets it or wants to avoid paying.
44% of all chargebacks are friendly fraud [2]. This could come from a child using a parent’s payment information. Or from buyers wanting to try to get free items.
If the customer can prove the transaction was “unauthorized,” they will likely attempt a chargeback. Whether the bank proceeds with their case depends on the provided evidence.
Merchants win more than 40% of these cases, though. Thus, the odds are in your favor.
Summary: Zelle doesn’t cover friendly fraud, but a bank might if a customer can prove it was an unauthorized transaction.
How the Chargeback Process Would Work Outside of Zelle
Let’s say there’s fraud.
A customer may go to their bank to start a chargeback. They usually have 120 days from the date of their statement to file a chargeback.
Here’s what the process for that will look like:
- Customer reports an error to their financial institution.
- Institution investigates the claim.
- Bank provides provisional credit within 10 days.
- Institution completes investigation within 45 days (or 90 under certain conditions).
- Customer notified of results and any remaining liability.
- Final credit or explanation provided to the customer.
The actual chargeback process, time limits, reason codes, etcetera will vary by bank and card network.
If a customer files a chargeback, Zelle won’t reverse the transaction and give the customer their money back [3]. The bank will.
What Are Chargebacks, Then?
A chargeback under Regulation E happens when a buyer disputes an fraudulent electronic fund transfer (EFT). This protects consumers who use electronic payment methods, such as:
- Debit cards
- Direct deposits
- ATM transactions
If the bank finds the transaction was authorized, it will revoke the provisional credit. The bank must inform the consumer of the investigation results in writing. If the claim is denied, the explanation must include reasons for the decision.
A Regulation E chargeback deals with unauthorized electronic fund transfers from bank accounts. This includes debit cards and direct deposits.
A credit card chargeback under Regulation Z addresses disputed credit card transactions. This involves billing errors, unauthorized charges, and dissatisfaction with goods or services.
Regulation E focuses on protecting consumers' bank accounts. Regulation Z protects credit card users. The processes and protections differ based on the type of account and transaction.
Summary: A chargeback is a forced reversal of funds. Rules differ for debit and credit.
How’s This Any Different From a Refund?
Think of refunds as a friendly gesture initiated by the seller, often in response to a return or customer dissatisfaction.
Chargebacks are more forceful.
They're initiated by the customer's bank and act as a reversal of the original transaction. This happens due to:
- Suspected fraud
- Unauthorized purchases
- Dissatisfaction with the product or service
Chargebacks often come with fees for sellers and can tarnish their reputation with payment processors. Leading to increased scrutiny of future disputes. Card networks will also place them in chargeback monitoring programs. Such programs can lead to increased fees per chargeback.
Summary: Refunds are seller-initiated returns, while chargebacks are forced reversals by the customer's bank.
Is There a Way to Prevent Zelle Chargebacks?
- In short: There’s nothing you can do; it’s up to the customer to prevent fraud.
Since buyers can only do chargeback disputes for unauthorized transactions, you must focus on fraud prevention. Usually, I’d recommend enforcing strong password guidelines, CAPTCHA, and multi-factor authentication. But since you don’t own Zelle, there’s nothing you can do.
Transactions are done through Zelle accounts. Thus, unauthorized transactions would likely come from account takeovers.
These could come from the following:
- Weak passwords
- Brute force attacks
- SIM card swapping
- Phishing
I don’t mean to kick you while you’re down. However. This information is here to let you know why the chargeback likely happened. And to help you weigh whether Zelle’s worth using.
Summary: You can’t prevent Zelle chargebacks.
Is Zelle Worth Using as a Business?
Zelle is worth using if you’re a local seller and want to deal with a customer face-to-face. Due to the lack of seller protection, I wouldn’t recommend it if you’re a retailer.
For example, if I had to choose a payment processor for when I sold at conventions, I’d opt for a processor like Square or PayPal. Both offer POS systems and some seller protections.
Zelle also doesn’t work internationally. Thus, it’s not ideal for e-commerce.
Here are some statistics to help you determine whether it’s worth using [4, 5]:
- More than 100 million banking customers can access it.
- No fees to send or receive money.
- Transactions between small businesses and Zelle were $2 billion daily in 2023.
- 80% of US DDA Accounts include Zelle.
- Over 50% of MDI Banks in the US offer Zelle.
- 0.15% market share of payment processors.
Zelle has a large number of people that have access to it. But not so many people use it. If you’re a business, consider other peer-to-peer apps like Cash App. Or more secure payment processors like Apple Pay.
That’s what I’d do.
Summary: Zelle is worth using if you’re doing local sales and don’t want to pay fees.
FAQs
How Do I Dispute a Transaction on Zelle?
You cannot file a dispute or chargeback with Zelle. They don’t allow reversals of payments. If someone scammed you or you’re a victim of fraud, visit Zelle’s website and fill out your contact, recipient, and payment information. This will protect others from falling victim to similar scams.
Conclusion
Since no transactions on Zelle are done with credit cards, customers only have consumer protection through Regulation Z. This only allows them to file chargebacks with their bank.
If you’re using other platforms that accept cards (e.g., Stripe), you’ll need a way to prevent chargebacks. We offer chargeback alerts to help you catch and fix disputes before they become chargebacks.
Sources
- [1] Zelle, Fraud & Scams Overview
- [2] TouchNet, Fighting Friendly Fraud and Winning More Chargebacks
- [3] Zelle, Can I reverse a Zelle® payment?
- [4] Zelle, About Zelle
- [5] 6sense, Zelle Market Share
