Have the big banks finally cracked the code on P-to-P payments?
In the coming months, the largest U.S. banks are expected to relaunch their person-to-person payments service with a new name, an easy-to-use mobile app and a slick ad campaign.
The revamped product is called Zelle — short for gazelle, the antelope species that can run as fast as 60 miles per hour. Its architects are promising not only speed — the payments are supposed to move in real time except in cases where fraud is suspected — but also unmatched levels of security.
Zelle has the backing of JPMorgan Chase, Bank of America, Citigroup and Wells Fargo, in addition to large regional institutions such as BB&T, Fifth Third Bancorp, U.S. Bancorp, Capital One Financial and PNC Financial Services Group. At its launch, the P-to-P service will be available to more than 75 million mobile banking customers, according to its backers. That scale could potentially give the participating banks a big edge in a crowded payments marketplace.
Zelle has been dubbed the banking industry’s “Venmo killer” — a reference to the PayPal-owned app that has soared in popularity, particularly among millennials. And the big banks do appear to have learned some important lessons from their earlier foray into P-to-P payments, which failed to capture the public’s imagination.
“I would fully expect this group to develop a great user experience that’s respectful of the customer and secure," said Michael Abbott, who leads the digital financial services practice for North America at Accenture. "It may not happen overnight, but I firmly believe they’ll get there.”
Still, the large banks’ advantages offer no guarantee of success. There are plenty of examples of deep-pocketed incumbents — from bookstore chains to video rental stores — flailing in their efforts to stave off nimbler upstarts.
Below is a look at the areas where the big banks have made strides in person-to-person payments, as well as those where questions remain about their strategy.
Perhaps the most important change that the big banks are making involves branding. For years, the banks enabled person-to-person payments across a shared network — known inside the industry as clearXchange — but they marketed the service under different brand names.
Chase offered QuickPay. Wells Fargo’s version was called SurePay. U.S. Bank dubbed its service Send Money. Consumers could use these products to deliver cash to people with accounts at other banks, but that utility was not intuitively obvious.
By rebranding as Zelle, the participating banks are conveying a simpler message to their customers.
“With Zelle, consumers can use an email or a mobile number to send and receive payments,” Paul Finch, the CEO of Early Warning Services LLC, the bank-owned company that developed the payment system, said during a presentation in October.
Zelle will be accessible from the banks’ own mobile banking apps, as well as from a stand-alone app. Efforts to publicize the rollout are expected to begin in February.
Industry participants are hoping that “Zelle” will catch on as a verb — similar to how many consumers today ask their friends to “Venmo” the amount of cash they owe.
“Don’t underestimate the power of just having a simple brand,” said Accenture's Abbott.
Another important lesson absorbed by the banks involves ease of use. Products that are hard for customers to find, or inconvenient to use, generally do not get much traction.
That problem hobbled the previous generation of P-to-P payments offered by the big banks. Last year, only 14 of the top 30 banks were offering person-to-person payments in their mobile banking apps, according to Javelin Strategy & Research. That number should rise in 2017.
Finally, the big banks appear to have learned an important lesson regarding pricing. Consumers have numerous free options for P-to-P payments, and there is little reason to think that many folks are willing to pay a fee for the service.
In the past, some banks insisted on charging for P-to-P payments. For example, U.S. Bank charged $6.95 for real-time money transfers before abandoning that approach in July 2016.
During a Jan. 13 conference call, PNC Chief Executive William Demchak said that the Pittsburgh-based company sees benefits from offering Zelle, even though its customers will not be paying fees to use to the service. Specifically, he argued that customers who become accustomed to using Zelle will be less likely to switch banks.
“It puts our consumers back in our hands,” Demchak said. “It’s not a revenue opportunity out of the gate as it relates to the product specifically. But I think it is another part of the customer relationship that makes it more sticky.”
Still, there are a couple of important questions hanging over the debut of Zelle.
The first issue is whether the revamped payment network can fulfill its ambition of becoming something bigger than a way to split restaurant bills, or to pay the handyman.
In addition to person-to-person payments, the big banks have their eyes on the business-to-consumer market, as well as the business-to-business market. Zelle is being touted as a new way for insurance companies to pay out claims, or for companies to reimburse their employees for travel expenses.
“It works the same for companies as consumers,” Lou Anne Alexander, group president of payments at Early Warning Services, said during remarks at the Money 2020 conference in October. “This eliminates the hassle of paper-based payments.”
Eventually, participating banks may be able to generate revenue from business uses of Zelle, though it is not clear how strong demand will be in the corporate world.
"We are implementing B2B and B2C scenarios with several customers and look forward to announcing those relationships soon," Alexander said in an email.
The second unanswered question involves Zelle’s ultimate reach.
Zelle is aiming to connect all 12,000 U.S. bank and credit unions — the holy grail for payment systems, because of the powerful network effects that stem from ubiquity. But it is not clear how many smaller institutions will choose to join a network owned by the big banks.
Of the 18 banks and credit unions listed as participants on Zelle’s website, all but five have at least $50 billion of assets. Earlier this week, the $106 billion-asset BMO Harris Bank unveiled its own branded P-to-P payment app, opting not to use Zelle.
Zelle could also collide with other more sweeping efforts to modernize payments in the United States.
A task force convened by the nation’s Federal Reserve banks is expected to release a report in mid-2017 evaluating 19 proposals to build a faster system. One of those proposals is from The Clearing House, which, like Zelle, is owned by the nation’s largest banks.
In the meantime, Zelle is taking steps to extend its reach beyond customers of the banks that have signed on to the network.
It has partnered with FIS, Fiserv and Jack Henry & Associates, giving smaller institutions that rely on those firms a way to plug into the P-to-P network. Zelle will also allow consumers who have Visa or Mastercard-branded debit cards to send and receive payments over the two major card networks’ rails.
Time will tell whether those steps are enough to spur adoption by the many millions of U.S. consumers who do not have accounts at the nation's big banks.