Convenient target: Smarter regulation needed to combat peer-to-peer payment scams

Editor’s note: The opinions expressed in this commentary are the author’s alone. Tony Bergida is an Olathe-based entrepreneur and small business owner, as well as a candidate for Johnson County Commission District 6. Click here to read more about that race in the 2024 KC Voter Guide, a free-to-access resource produced through a partnership of the KC Media Collective and The Kansas City Star.

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As a small business owner in Johnson County, I recognize the vital role that peer-to-peer payment apps like Venmo, PayPal, CashApp, and Zelle play in our modern economy. These platforms are indispensable not only for established businesses but also for 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 drives our local economy. I urge U.S. Sen. Roger Marshall, R-Kansas, and other policymakers to redirect their focus toward addressing the root causes of fraud and scams, targeting the criminals responsible rather than over-regulating the platforms themselves.

The risk of over-regulation

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 multiple user-oriented actions to authorize transactions, such as two-factor authentication and transaction alerts. Further regulations that place the burden of refunding fraudulent transactions on these platforms or their small bank partners would disproportionately impact smaller financial institutions. If small banks are forced to bear the costs of fraudulent transactions, they may find it financially untenable to offer these services, pushing customers towards larger banks and reducing competition in the financial sector.

Impact on startups and grassroots campaigns

The proposed regulations could inadvertently create a monopolistic environment where only large banks can afford to offer digital cash transfer services. This would lead to a significant disadvantage for the 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 appreciate the ease of using these apps for transactions, and any disruption in their availability could lead to a cumbersome shift to less efficient methods, ultimately affecting their operations and growth.

Addressing the core issue: Fraudsters and scammers

Rather than imposing heavy-handed regulations on peer-to-peer payment platforms, it is more prudent to address the core issue: the fraudsters and scammers themselves. By focusing efforts on educating consumers and leveraging federal resources to track and prosecute these bad actors, we can make a more significant impact on reducing fraud. According to the Federal Trade Commission (FTC), consumers reported losing over $10 billion to fraud in 2023, a figure that has only increased in the digital age. However, education campaigns can help consumers recognize and avoid scams, while law enforcement can deploy advanced technologies to trace and apprehend fraudsters.

Leveraging federal resources

For instance, 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. Furthermore, public-private partnerships can be forged to enhance cybersecurity measures and share intelligence on emerging threats. This proactive approach not only curtails fraud but also preserves the integrity and functionality of peer-to-peer payment platforms.

A call for smarter regulation

In conclusion, Sen. Marshall and his colleagues should reconsider the direction of their regulatory efforts. Over-regulating peer-to-peer payment platforms is a misguided approach that risks harming startups, side hustles, and campaigns, as well as reducing competition in the banking sector. Instead, we should focus on the root causes of fraud by educating consumers and deploying federal resources to hunt down and stop scammers. By doing so, we can protect consumers, maintain the convenience of digital payment systems, and support the thriving ecosystem of entrepreneurs and grassroots organizers that rely on these platforms.

Tony Bergida is a small business owner in Johnson County.

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