A new entrant to the payments market aims to ease person-to-person payments between big bank customers and credit union members when it goes live early next year.
Zelle, pronounced like the quick-hoofed gazelle, is a Early Warning product that will be offered by Fiserv, which designed the first turnkey solution. Other resellers will include CO-OP Financial Services, FIS and Jack Henry & Associates. As a result, the solution will be offered at more than 6,000 banks and credit unions as an alternative to popular P2Ps networks like Venmo, a PayPal subsidiarity.
According to analyst Glen Sarvady, managing principal at 154 advisors, Zelle is "a rebrand and update of the ClearXchange P2P product, which Early Warning recently acquired. I think they learned a few key lessons, including that they needed common branding in the marketplace."
Among early adopters are the $9.4 billion First Tech FCU, the $15 billion BECU, Wells Fargo, Ally Bank, Bank of the West, Bank of America, Citi, MasterCard, Visa, PNC, Capital and Morgan Stanley.
"Credit unions can fall behind when it comes to the ease of doing business and providing simple services for moving money from Point A to Point B," said First Tech Federal Credit Union's Director of Cards and Payments Brian Ziff-Levine. "With Zelle, members can easily and safely transfer funds to and from participating big bank customers, whereas in the past this transaction would have been a difficult process."
Designed as a turnkey solution, Zelle is accessed directly from the credit union's mobile banking service and allows members to send money in real-time using a recipient's email address or cell phone number via the Zelle app.
To hear one credit union payments professional describe it, it's a solution that is long overdue.
"With other P2P platforms, the lack of ubiquity has impeded adoption," said BECU's Director of Retail Payments and Deposit Products Ken Myhra. "As each financial institution or third-party provider has tried to develop a solution of their own, it has further fragmented the space instead of providing members what they want and need, which is a ubiquitous solution across financial services companies."
Reinventing P2P
BECU has had a P2P platform, PopMoney, in place since 2009. Myhra explained that the solution is free for standard ACH payments, which take on average two or three business days. The CU only charges a $2 fee for next-day expedited delivery of the payment.
"We currently have about 100,000 enrolled users, averaging 40,000 to 50,000 transactions per month, totaling roughly $30 million inbound and outbound," said Myhra, adding that BECU supports 980,000 members.
Unlike the current P2P market leader Venmo, which charges 3% for credit card transactions, Zelle is not expected to charge for any of its services, although the company has stated that pricing will ultimately be determined by network partners.
BECU's PopMoney users haven't complained about nominal fees, but often decry transaction speeds, noted Myhra. He explained that both debiting and crediting of funds are done in real-time with Zelle.
"Consumers should only have to care about who they need to pay, how much and by when," said Myhra. "The attractiveness of truly having real-time money movement will drive usage and adoption of the service."
While Ziff-Levine explained that First Tech FCU's 450,000 members have had the ability to transfer funds between member accounts using its online banking platform, adopting Zelle is the first time the CU is entering the P2P payment space.
"We're excited to offer this opportunity for First Tech members – increasing the overall ease and security of transferring money moving forward," said Ziff-Levine who added that First Tech FCU has been on Zelle's advisory council since 2015.
"We have a very technology savvy member base, as a lot of our members work for major technology companies like Intel, Amazon, Microsoft and Google, to name a few," he said. "We anticipate Zelle to be well received as many are quick to adopt new financial products and services that leverage technology."
The Venmo Challenge
If Zelle is to be a formidable player in P2P payment arena, it will have to meet consumer expectations set by millennial favorite Venmo. According to a July PayPal earnings report, Venmo processed $4 billion in transactions during the second quarter of 2016, which represents 140% growth over the same period in 2015.
For credit unions in the P2P space, Sarvady said the days of "going it alone" are over. He used the analogy of a cell phone provider that offers a service plan which only covers 70% of users' needs.
"Credit union members don't only pay other credit union members," said Sarvady. "Venmo has a big lead in the marketplace. So with Zelle, it's going to be all about awareness and end points, and the credit union space plays a big role in that."
Since BECU utilizes Fiserv's core and payments platforms, adopting Zelle is a streamlined process, explained Myhra.
"By leveraging our existing P2P user interface, we will be able to design the required Zelle flows on the front end and on the back end," said Myhra. "By integrating the Zelle network direct to our core banking platform we'll be able to meet the real-time good funds requirements."
In Ziff-Levine's estimation, Zelle will grow on the strength of the recent P2P surge. And since the integration of Zelle will occur at the ACH and card network level, he believes those credit unions with "fewer development resources" have the opportunity to work with Zelle to provide a full-service integration option.
"With the convenience and security that Zelle can offer First Tech members and other CUs, we anticipate that adoption will ramp up quickly," said Ziff-Levine.
