Can Zelle Bring Back P2P Users?

Can Zelle Bring Back P2P Users?

Can Zelle Bring Back P2P Users?

Charles Keenan

Charles Keenan

Charles Keenan has written about payments since joining the American Banker as a staff reporter in 1997, a time when automated teller machines were appearing just about everywhere but people’s living rooms thanks to the relaxation of surcharging rules.

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Zelle, a new person-to-person payment (P2P) platform to debut early this year, certainly has the ingredients to be a smashing success. Built by a bank-owned consortium as a way to offer near real-time payments, Zelle could upend the P2P market, now dominated by Venmo, the wildly popular app. But whether Zelle succeeds might come down to simply how easy it is to use the app.

"Zelle could be the next great thing," says Ben Milne, chief executive officer of Dwolla, a payment company based in Des Moines, Iowa. "They just have to nail the experience."

And in payments, that is easier said than done.

Zelle 101

Zelle will differentiate itself mainly by offering practically real-time transfers, with payments pushed from the initiating financial institution to the receiving one. Recipients will have funds credited to their accounts in minutes, giving Zelle a leg up on Venmo and other P2P products, which use the rails of the Automated Clearing House (ACH). (The ACH network now offers two settlement times during a day.)

Yet with Zelle, the sending bank will stand in and vouch for the "good funds" until the payment settles via ACH later, offering a real-time feel for consumers.

"It's a real advantage for banks to be able to offer that," Carrie Sumlin, digital consumer executive for Ally Bank, a subsidiary of Detroit-based Ally Financial Inc. "We have all seen the growth and adoption that Venmo has had in a relatively short period of time. It's important that we are offering services that are not only as good as what nonbanks can offer, but also in the case of Zelle, even better. The access to that money is instantaneous."

Zelle also has another key ingredient needed for success: widespread adoption. Owner banks have poured millions of dollars into the initiative, formerly known as clearXchange. Its members include the largest banks, such as JPMorgan Chase, Citi, U.S. Bank, PNC and Wells Fargo. Zelle’s owner, Early Warning Services, has also partnered with payment processors CO-OP Financial Services, FIS, Fiserv and Jack Henry, along with the card networks Mastercard and Visa. Co-op Financial Services, a vendor for 3,500 credit unions, has also jumped on board. (Early Warning, owned by a group of banks, declined to comment for this article.)

All told, Zelle will provide a network of roughly 6,000 banks and credit unions, including the 40 largest financial institutions in the U.S., along with thousands of mid-size and community financial institutions. When it is fully online later next year, it will reach 100 million demand deposit accounts, about 80 percent of the U.S. market. That kind of adoption out of the gate is a good starting point.

Big potential

Zelle, announced in October at Money2020 with much fanfare, created instant buzz. For good reason: given the ubiquity, it offers a real chance to recapture market share in P2P and is a potential way to draw consumers back in, says Ken Myhra, Director of Retail Payment at BECU, a credit union based in Tukwila, Wash., that will be part of the Zelle network. "By allowing members to move real time in this fashion from one place to another, we allow that relationship to stay intact at the financial institution."

In fact, P2P should be a standard, free offering, he adds. "We at BECU feel like P2P payments has become a commoditized service," Myhra says. "It's an absolutely mission-critical service to provide to our members to hold onto that relationship."

Big challenges

Zelle's overall challenge will be to carve out market share. After all, consumers will often need to add another app to handle payments, unless they are using an integrated portion within their own banking app. Consumers are now flocking in droves to Venmo, which had volumes of $4.9 billion in the third quarter of 2016, up more than double from $2.1 billion from the same period a year earlier, according to PayPal, Venmo's owner.

P2P has been a tough market to crack. clearXchange has offered real-time payments among some of the largest banks, such as JPMorgan Chase, Bank of America Corp. and U.S. Bancorp. Yet despite real-time aspects offered by some of these banks, clearXchange never took off, being described as a "clunky" experience by some users. Popmoney, another P2P solution offered Fiserv, never reached the ubiquity.

In terms of user experience, the consistency Zelle promises to offer is a big plus. If most banks push the product, they will no longer offer a P2P payment option developed by their processor of choice, with its own unique look and feel.

"The creation of Zelle eliminates the different experiences, moving everyone from one sender experience and one receiver experience," says Matthew Wilcox, senior vice president of marketing strategy and innovation at Fiserv, a payments company based in Brookfield, Wis. "Usability has been an inhibitor to adoption. This solves for a lot of that."

One key will be how financial institutions market Zelle to build awareness. "Are they going to get behind the Zelle brand?" says Sarah Grotta, director of the debit advisory service of Mercator Advisory Group, a consulting firm Maynard, Md. "Are they all going to have a comparable, easy consumer experience? For Zelle to be successful, there needs to be centralized branding to create the ubiquity."

The potential payoff for Zelle members is big, and the stakes are high. "Consumers have begun to turn their eyes outward from their financial institutions into the fintech space to look for these types of solutions for their daily financial lives," Sumlin says. "This has the potential to really reestablish financial institutions at more of the core of leading-edge capabilities."

The statements and opinions of the writer do not necessarily reflect those of TSYS.

Other Articles by Charles

Charles Keenan

Charles Keenan has written about payments since joining the American Banker as a staff reporter in 1997, a time when automated teller machines were appearing just about everywhere but people’s living rooms thanks to the relaxation of surcharging rules.

His work at the American Banker included writing about credit and debit cards, merchant processing, and bank stocks. He later freelanced for the Banker and industry publications such as Banking Strategies, Bank Director, Community Banker, and U.S. Banker. He also writes about investing, insurance and health care, and is based in Los Angeles.

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