Payments

Zelle Usage Continues to Grow Amidst Security Concerns

MEDICI

P2P payments – one of the key segments where FinTechs have significantly dominated the banks. The PayPals, Venmos, and Paytms of the world have been enjoying their lead in their respective markets. However, the US payments market is witnessing a comeback story – the one where banks have come together to combat Venmo’s market dominance in P2P payments. Zelle, the bank-led instant payments platform developed by Early Warning, continues to make waves in the US payments market.

Earlier known as ‘clearXchange,’ Zelle was founded in 2017 with the biggest banks in the US working with Early Warning to come up with a real-time P2P payments platform. The platform first came into action when it was integrated by Bank of America into its mobile app. In June 2017, the platform was officially launched, enabling the customers of its partner banks to transfer money in real time for free. For those whose banks which weren’t Zelle’s partners yet, a standalone mobile app was launched in September 2017.

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The biggest driver of Zelle’s growth is the access to a vast customer base – courtesy its partner banks. As of today, Zelle has 114 partner banks and credit unions, 25 of whom have already integrated Zelle in their mobile apps. Out of the $25 billion which Zelle moved in Q1 2018, ~$9 billion was moved through Bank of America’s mobile app. For more than 95 million consumers, Zelle is already available from the convenience of their mobile banking app, with no additional downloads required. Even when they don’t specifically seek to use Zelle, it’s already present in their own mobile banking app and this has been a great boost to Zelle’s numbers.

On a parallel note, Zelle doesn’t have to kill its competition to succeed. In the case of Zelle and Venmo, the usage statistics highlight two different use cases. Venmo’s transaction value per unit is around $10, substantiating the fact that its primary and most dominant use case is social payments such as bill splitting. Whereas for Zelle, the transaction value per unit is ~$290, which as per several reports, has been seen peaking during the first week of every month. This shows that Zelle’s primary use case is rent payments, utility bills, and other medium ticket-size payments. Also, both Zelle and Venmo have moved beyond P2P. While PayPal has announced Venmo’s merchant integration for facilitating seamless and real-time C2B payments, Zelle is venturing into B2C payments. BNY Mellon and US banks have announced their B2C offering featuring Zelle, enabling them to make electronic payments to their customers using just email IDs or phone numbers. With a few more banks expected to partner with Zelle for B2C use cases such as rebates, rewards, claims, benefits & refunds; disbursements are turning out to be one of the biggest growth opportunities for Zelle in 2018. This can also be leveraged as another channel for consumer awareness and education as Zelle’s corporate customers can demonstrate to their end-consumers that Zelle is as much for receiving money as it is for sending money, with a clear emphasis on its ease-of-use.

While Zelle’s transaction value is expected to grow with such additional use cases and implementations by banks, there have been growing calls for Zelle as well as its partner banks to strengthen the security measures around Zelle payments as several incidents of fraud have been reported. The cases range from non-recovery of money sent to the wrong phone number, transaction failure, and purchase/sale non-payment fraud. While many of these cases are related to a user’s carelessness and naivety, some of the issues arise from banks’ hasty implementation of Zelle without the required authentication and security protocols in place. There is a strong need for both Zelle as well as partner banks to increase their focus on security during integration. With stronger security, anti-fraud mechanism, and a growing list of banking integration, Zelle will prove to be an even stronger force to be reckoned with, giving banks enough armada to fight FinTechs in the battle for P2P dominance and give them a good run for their money.

Diwakar Mandal

MEDICI

Diwakar is a FinTech enthusiast and an avid researcher who spends his time learning and writing about market trends, traction and disruptions in the industry. He has been active in the financial services consulting space for over four years.