Neobank pioneer Varo Bank has become the first digital bank to join Zelle’s payment network. Surely this move represents a step forward for neobanks. Zelle’s platform had, until now, excluded neobanks. It highlights the need for neobanks to be keenly aware of service issues. This is for a client base they can never see face to face. John Stewart provides full details of Varo Bank’s arrangement with Zelle in Digital Transactions:
“The bank, a unit of the 7-year-old, San Francisco-based Varo Money Inc., said it will now offer payments via Zelle through its mobile app. ‘Adding Zelle to our product lineup is our bank charter in action’, said the company’s founder and chief executive, Colin Walsh, in a statement. ‘We are excited to welcome millions of Americans to access Varo’s full range of benefits on our modern, secure, digital-banking platform that now includes the ability to quickly send and receive money.’”
Traditional banks and neobanks have had difficult relationships. Another key point, traditional banks have been wary of the methods many neobanks have used to attain charters. Interestingly, Varo Bank has used a traditional national bank charter rather than an industrial loan corporation charter. Some digital banks are utilizing the industrial loan corporation charter. As a result, this has likely removed a key barrier to entry for Zelle. Zelle’s parent, Early Warning, is owned by a conglomerate of organizations. They include large national banks Bank of America, Capital One, JPMorgan Chase, PNC, Truist, U.S. Bank, and Wells Fargo. The expectation for Zelle, to continue its growth and for neobanks to continue to gain market acceptance would be for additional new digital bank Zelle members to be added.
Customer Service is Key
Varo Bank and other neobanks that may follow, should continue their focus on customer service as I highlighted in PaymentsJournal in May. Zelle and other peer-to-peer payment providers have come under heavy scrutiny related to the lack of customer protections in cases of potential fraud. The fight over fraud regulations is coming to a head just as Varo Bank joins Zelle. The American Bankers Association argues that heavy handed oversight will negatively affect customers and reduce the value of P2P services.
With or without new regulations Mercator research has shown, P2P providers rank very low in terms of resolution and customer service. This is in contrast to the same survey that finds much higher levels of satisfaction for core banking services such as debit cards, 75% somewhat satisfied or better, personal checking, with 69% satisfied, and online banking also at 69% satisfied. With customer service a key function of neobanks, Varo Bank needs to be keenly aware that entering into P2P services, while a critical business need, can also negatively impact their core customer satisfaction results around fraudulent activities.
Overview by Jordan Hirschfield, Director of the Prepaid Advisory Service at Mercator Advisory Group.