Where Paze hopes to find space for its digital wallet

• Key insights: Early Warning's Paze has partnered with Citi, Fiserv and others to build a network for the digital wallet. 
• What's at stake: Consumers are using digital wallets, but most of the providers are not banks.
• Forward look: Early Warning will need to either convince digital wallet nonadopters to use Paze or lure away people who are using other digital wallets. 

The vast majority of consumers and merchants that have flocked to digital wallets in recent years are not using a bank app, but that doesn't bother Early Warning's Eric Hoffman. 
"There's a huge untapped consumer market that has still not adopted mobile wallets," Hoffman,  chief partnership officer at Early Warning Services, told American Banker. "There are a lot of people who are still using guest checkout, so there's a strong addressable market." 

Early Warning, the bank-led company that manages the Zelle P2P app and the newer Paze digital wallet, recently signed a deal with Citi to support Paze. Citi cardholders will be able to activate Paze through Citi.com, Citi's mobile app or Paze's website. Consumers can access Paze through a branded button on participating retailers' online checkout. 

The Citi deal came at around the same time that Paze signed a similar partnership with Domino's and follows earlier collaborations with payment processors and bank technology firms. Early Warning, which has managed Zelle's successful rollout and growth, is trying to do the same with Paze, which operates in a market with several large and well-established mobile wallets, such as Apple Pay and PayPal.  

"Citi's deal is a big milestone," said Hoffman, noting Citi is one of the largest card issuers in the U.S. 

Banks and consumers needed

Bank of America, Capital One, JPMorganChase, PNC, Truist, US Bank and Wells Fargo own Early Warning, creating a need for Early Warning to sign other banks or bank suppliers to grow Zelle and Paze. Paze also has to compete for space with large existing digital wallets and P2P apps that are mostly managed by large technology companies like Apple, Google and PayPal. 

Hoffman, who was an executive at Apple Pay from 2014 to 2023, said Paze does not necessarily have to take users away from the big tech digital wallets, but instead reach new users, who will access Paze for frequent small-dollar transactions. This will build habits among those consumers that will boost Paze and the banks' other products, providing an incentive for the banks to support Paze. 

Paze, which launched in 2023, has more than 165 million credit and debit cards in its network. Paze's other distribution arrangements include Fiserv, which has made Paze available to the bank technology seller's clients, and payment processors including Nuvei and Worldpay. 

"PayPal and Apple Pay have been around for awhile, but there is a strong addressable market," Hoffman said. 

Lots of wallets

Paze is trying to gain ground in a digital wallet market that's huge and rapidly expanding, but is also dominated by technology companies that, while they aren't banks, have a huge head start and have millions of users that are accustomed to using technology company-led digital wallets instead of banks. 

"Digital wallets continue to evolve into a default payment choice, especially among the younger generations," Tony DeSanctis, a senior director at Cornerstone Advisors, told American Banker. "With as many as 10 digital wallet solutions in the marketplace today, do we need another one? Paze is really going to have to prove itself if it wants to be an important or relevant wallet solution in the future."

Non-banks, particularly Apple, dominate the digital wallet market. Globally, Apple Pay has 785 million users, making it the largest digital wallet, according to CapitalOne Shopping Research. More than 90% of U.S. retailers accept Apple Pay, which is available in 95 countries. Consumers use Apple Pay for 14.2% of all online payments. In the U.S. Apple Pay usership is about 66 million and is on pace to reach 84 million in the next four years, according to Capital One, which last updated its digital wallet research on January 28.

CapitalOne Shopping reports 38% of Americans use digital wallets at least once per week, including 10% who use them daily. That level of adoption, which is well short of 100%, leaves room for Paze, according to Hoffman

"We can reach the next generation of consumers as they get into their adult lives," Hoffman said. 

 Apple, which launched Apple Pay in 2014, does not process payments — so it relies on partnerships with banks and merchants for distribution. But Apple's ability to enroll consumers quickly and provide easy biometric authentication places Apple in a favorable position in terms of controlling data used in marketing and cross-selling. 

Other non-banks also have large user bases for their mobile wallets, according to Capital One. Forty two percent of Americans use PayPal, 34% Apple Pay, 33% Venmo, 24% use Block's Cash App and 17% use Google Wallet. Twenty eight percent of Americans consider Apple Pay to be their primary digital wallet, with 19% listing PayPal, Capital One reports. 

Early Warning's Zelle has been building its network since it launched in 2016. Zelle has more than 150 million enrolled users and more than 2,300 banks and credit unions on its network. 

"To get consumers to adopt Paze, many more merchants need to offer a benefit for doing so.  Otherwise, people will continue to use the cards that they are familiar with," Aaron McPherson, principal at AFM Consulting, told American Banker. "It would be a mistake to conclude that just because Zelle was successful, that Paze will be as well."

Another strategy would be for the banks to reward their customers for using Paze, just as they do with credit cards, according to McPherson. 

"I realize the economics are not there, but some sort of incentive needs to be in place to drive adoption. From there, other services, such as installment payments, could be integrated."