You would be hard-pressed to miss the news about the recent launch of the person-to-person payments app, Zelle. The company's parent company, Early Warning Systems (EWS), has released a full barrage of press releases, promoted tweets, and co-branded advertisements with partner banks to tell the world that Zelle is “The Way Money Moves.” Additionally, major banks have started using the Zelle branding in their mobile and online money movement screens and have begun email marketing campaigns with their customers. This has left many people wondering what exactly Zelle is though, and why it’s different from previous offerings from the banks.
Simply put, Zelle is the rebranding of the existing peer-to-peer directory service and network rules called clearXchange, which is used to move money between a number of major US banks today. The service has been enhanced to solve some of the key pain points from the previous generation offering, mainly around increasing the ubiquity of the network by extending it to customers at additional banks. EWS has done this through partnerships with Visa and MC as well as providers like FIS, Fiserv, and Jack Henry. It’s these new partnerships – along with opening up the app to any user with a debit account – that really extends the usefulness and ubiquity of the Zelle network.
The first phase of Zelle is for participating banks to rebrand their person-to-person money movement tools to the Zelle name and to standardize the screens used for this functionality. You may have started seeing this happen with the apps from Bank of America, Wells Fargo, and others. The second phase of Zelle will be a consumer-facing Zelle app deployed to the app stores that allows users to send money via a simple, clean interface – much like what you would find with Square Cash or Venmo. By offering the quick service app and a similar experience within the user’s existing bank app, Zelle is hoping to stop the bleeding of users who are shifting to Venmo (and its peers) and pick up the new users of P2P products.
Under the covers, Zelle still functions by combining a directory of emails and phone numbers matched to bank account data along network rules for moving money along the ACH network. Thanks to bank agreements, the money is made available immediately to the receiving user, despite the overnight timing of the actual money movement. This real-time availability is a key differentiator for Zelle and something other services will likely want to replicate for parity.
Even after knowing what Zelle is, you may still be left wondering why it really matters; after all, it’s nothing fundamentally new, and Venmo and others seem to work perfectly fine. As an IT services provider and a 17-year veteran of the banking industry, I have seen more interest in Zelle that I have ever seen in any other banking product. This is partly due to the fact that the banks have been looking for something new they could leverage to begin competing against (or at least offer something comparable to) companies like PayPal, Venmo, Apple, and Google.
Additionally, the design of the Zelle network and support from all of the major financial services software providers have made the product accessible to banks of all sizes. In most cases, the larger banks are building custom integrations to Zelle so they can leverage the functionality for future products like TCH real-time payments, bill pay, or disbursements. The smaller banks are utilizing their existing providers like FIS and Fiserv to integrate with Zelle, and the mid-market banks are doing a combination of both.
Regardless of the specific approach taken, all retail consumer banks in the US should look closely at Zelle to find the right fit for their business. Given the rapid evolution of the product and the continued expansion of its capabilities (such as integration with the EWS fraud services), its alignment with the TCH real-time network, and the increased momentum in adoption, it is worth evaluating – even for banks that previously decided not to participate. Zelle could be exactly what they need to keep customers engaged and utilizing their products instead of shifting their financial service interactions to Apple and Google.