Smarter regulation needed to combat peer-to-peer payment fraud

Editor’s Note: The opinions expressed in this commentary are solely those of the author. Tony Bergida is an Olathe entrepreneur and small business owner, and a candidate for Johnson County Commission District 6. Click Here to learn more about this race in the Kansas City 2024 Voter Guide, a free resource produced in partnership between KC Media Collective and The Kansas City Star.

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ANDAs a small business owner in Johnson County, I recognize the important role that peer-to-peer payment apps like Venmo, PayPal, CashApp, and Zelle play in our modern economy. These platforms are essential not only to established businesses, but also to startups, side hustles, and grassroots campaigns. They offer the convenience of instant transactions that traditional banking methods often lack. However, recent moves by the U.S. Congress to impose stricter regulations on these platforms threaten to undermine their utility and, by extension, the entrepreneurial spirit that fuels our local economy. I urge U.S. Senator Roger Marshall, Republican of Kansas, and other policymakers to shift their attention to addressing the root causes of fraud and scams by targeting the criminals responsible rather than overregulating the platforms themselves.

Risk of overregulation

Peer-to-peer payment systems are not inherently flawed; their popularity and convenience have simply made them attractive targets for fraudsters. These platforms already incorporate many user-facing measures to authorize transactions, such as two-factor authentication and transaction alerts. Further regulation that places the burden of refunding fraudulent transactions on these platforms or their small banking partners would have a disproportionately large impact on smaller financial institutions. If small banks are forced to bear the costs of fraudulent transactions, they may find it financially unviable to offer these services, driving customers to larger banks and reducing competition in the financial sector.

Influence on start-ups and grassroots campaigns

The proposed regulations could inadvertently create a monopolistic environment in which only large banks can afford to offer digital cash transfer services. This would significantly inconvenience many small businesses, startups, side hustles, and campaigns that rely on the agility and accessibility of peer-to-peer payment platforms. Entrepreneurs and grassroots organizers value the ease of using these apps to transact, and any disruption in their accessibility could lead to a burdensome transition to less efficient methods, ultimately impacting their business and growth.

Getting to the Root of the Problem: Scammers and Con Artists

Rather than impose heavy regulation on peer-to-peer payment platforms, it makes more sense to address the root of the problem: scammers and scammers themselves. By focusing efforts on educating consumers and using federal resources to track and prosecute these dishonest actors, we can have a greater impact on reducing fraud. According to the Federal Trade Commission (FTC), consumers reported losing more than $1.9 billion to fraud in 2019, and that amount has only increased in the digital age. But educational campaigns can help consumers recognize and avoid scams, while law enforcement can deploy advanced technologies to track and stop scammers.

Use of federal resources

For example, the IRS and FBI already have the infrastructure to investigate and prosecute complex financial crimes. Expanding these capabilities to include specialized units focused on digital payment fraud could help deter criminals. Additionally, public-private partnerships can be formed to strengthen cybersecurity measures and share intelligence on emerging threats. This proactive approach not only reduces fraud but also preserves the integrity and functionality of peer-to-peer payment platforms.

A Call for Smarter Regulation

In short, Senator Marshall and his colleagues should reconsider the direction of their regulatory efforts. Overregulating peer-to-peer payment platforms is a misguided approach that risks harming startups, ancillary businesses, and campaigns, and reducing competition in the banking sector. Instead, we should focus on the root causes of fraud, educating consumers, and using federal resources to pursue and apprehend fraudsters. In this way, we can protect consumers, maintain the convenience of digital payment systems, and support the burgeoning ecosystem of entrepreneurs and grassroots organizers who rely on these platforms.

Tony Bergida is a small business owner in Johnson County.