When Zelle was first launched, there were no plans to use the app for anything other than person-to-person (P2P) or consumer-to-business (C2B) invoiced account transfers. As Fool.com noted in an article based on the Wall Street Journal’s original reporting, that could be changing. The large banks that own Early Warning Services, the company that runs Zelle, are considering allowing merchants to accept Zelle for purchases. Why the change of heart? Two things, I think:
- The success of Zelle to attract and continue to grow its consumer base
- Competition from the likes of Venmo and Cash App
If the banks decide to make this move (it’s not certain yet they will, but I suspect it’s highly probable) it will be beneficial for them. They can add this solution to their stable of acceptance devices for their merchant clients and control the pricing. Merchants will like it because of the large, installed consumer base and the fact that Zelle is not associated with the card network rules, plus transactions can be received in real time. The downsides are that this represents a new vector for fraud and the consumer adoption is unknown. Unless incentives and protections are aligned such that consumers also benefit, adoption will be minimal.
From the Fool.com article:
America’s big banks are in a football huddle about whether to call an audible that would screen credit card companies out from one of their most lucrative revenue sources.
According to The Wall Street Journal, several notable Wall Street names are considering expanding their use of money transfer service Zelle to retail purchases, which would come at the expense of card issuers like Mastercard or Visa. Who owns Zelle? The banks.
The banks are reportedly considering creating a payment option on Zelle where money could go from a customer’s bank account to a merchant. Zelle, used by 1,425 banks and credit unions, handled 1.8 billion transactions last year, with $490 billion changing hands. That’s more than double 2019 figures and laps Venmo’s $230 billion worth of processed transactions.
According to sources who spoke to the WSJ, Wells Fargo and Bank of America are in favor of the move, but JPMorgan, US Bank, and Capital One are on the fence.
Overview by Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisory Group