Big Banks Launch Zelle to Compete with P2P Payments App Venmo

December 20th, 2016

P2P-12-20-16.pngFor the 1 million users sending and receiving money with the peer-to-peer (P2P) payments app Venmo, the phrase “Venmo me” will be hard to take out of their vocabulary. A total of 19 banks are giving it a shot, though, with the launch of Zelle next year, created by the financial risk management company Early Warning, a joint venture of the industry’s largest banks. Zelle will replace the big banks’ existing network ClearXchange. Some of the banks currently set to launch Zelle include Wells Fargo & Co., Bank of America Corp., Citigroup, Capital One Financial Corp. and JPMorgan Chase & Co.

Nonbanks are now processing 20 percent of P2P payments volume. Venmo is a clear leader, with widespread adoption among millennials, thanks to a platform that reduces friction of payments and allows users to integrate their social networks. It also works with iPhone’s latest technology, including Siri and iOS 10 iMessage integration.

Venmo is growing fast. In the first three months of 2016, Venmo had $3.2 billion in transactions among users, a 153 percent increase from the same quarter last year. Venmo is free to use when the money is coming from a checking account (there’s a 3 percent fee for credit card use), and the company is making plans for other ways to monetize the service.

How Big Banks Are Responding
According to the Federal Reserve’s Consumers and Mobile Financial Services 2016 report, 25 percent of mobile payments users sent money to friends or relatives within the U.S. in the previous 12 months.

With P2P poised to hit the mainstream, the big banks are making their moves, with some fortunate starting advantages. The 19 banks launching Zelle make up 76 million mobile banking users, so on day one, they already have a massive audience of potential users.

Users’ accounts are easily linked, and there is an instant exchange of money between users. On Venmo, however, it usually takes one to two days for the funds to transfer. That’s one reason the name Zelle is short for gazelle, which Early Warning CEO Paul Finch says “conveys speed and agility.”

While some people might be nervous to allow an outside app like Venmo to access their checking account, with Zelle, it is their checking account. So there will be fewer security fears thanks to facilitating payments from the user’s existing account. It’s a definite advantage, as the Federal Reserve reports 67 percent of people studied do not use any type of mobile payments because of security concerns.

Like Venmo, Zelle will allow people to request payments. Still, some questions remain about the release and how it will compare to Venmo’s best and newest features, including whether or not users will be able to instantly connect with social contacts and if Zelle will also take advantage of iPhone integrations.

Zelle Will Scale to Community Banks
According to TechCrunch, “Zelle is built to be scalable to include financial institutions of any size anywhere in the country.” The more people who use it, the better it becomes, so it’s created as an open network. “This is about creating a wide, and inclusive, alternative to cash and checks for everyone,” Finch said at the recent Money 20/20 payments conference.

The success of Zelle will be closely monitored by community banks, who aren’t likely to be able to build their own standard or compete with other major P2P services. As community banks are on the sidelines observing the launch of Zelle, the entire financial industry as well as other players in the battle for P2P payments, like Facebook Messenger, Square Cash, Apple Pay and Google’s Alphabet, will also be watching closely to see if Zelle grows in popularity as fast as its biggest rivals and can in turn become a part of the millennial lexicon.

This article first appeared in the Bank Director digital magazine.
saxton

Sicily Axton is the communications manager for StrategyCorps, a Nashville-based company that works with financial institutions nationwide to deliver mobile and online consumer checking solutions that enhance customer engagement and increase fee income. Follow Sicily on Twitter and LinkedIn.