Rent, disbursements power Zelle’s transaction growth
Five years after its launch, the bank-owned peer-to-peer payments service Zelle is driving transactions at a rate of about $1.6 billion a day, or $1 million a minute, according to its operator, Early Warning Services.
A top use case is consumers relying on the instant P2P service for last-minute rent payments, which helped to increase the total value of Zelle transactions by 29% during the second quarter to $155 billion, Early Warning announced Thursday.
Total transactions during the second quarter rose 27% to 554 million from a year ago, while disbursements businesses sent via Zelle during the latest quarter increased 87% over the same period a year earlier.
Zelle’s growing ubiquity and its near-instant speed are helping more lower-income consumers make their billing deadlines, according to Al Ko, Early Warning’s CEO, who said more than half of Zelle’s estimated 110 million users typically have less than $1,200 in their checking account.
Adobe Stock
“Zelle has become a tool enabling millions of people to use digital payments,” Ko said.
Nearly 1,750 banks and credit unions offer Zelle via a proprietary app, which includes about 80% of all U.S. bank accounts. But thousands of smaller banks and financial institutions accounting for about 70% of all U.S. financial institutions have not yet adopted Zelle, in part because they’re concerned about costs and fraud risk.
Zelle charges institutions on a per-transaction basis, and it varies based on resellers’ rates, Ko said. He declined to disclose the average cost institutions pay for each Zelle transaction.
“The transaction cost has been going down since we first launched, but obviously the higher the percentage of user adoption, the lower the cost for the institution,” Ko said.
Most banks offer users access to Zelle through their mobile apps; other account holders may access Zelle through a standalone app.
“We still have a very long tail of institutions that aren’t offering Zelle directly yet,” Ko said, noting that Early Warning is making steady headway in advancing adoption with smaller banks and credit unions at a rate of about 60 institutions a month, Ko said.
More than 100 Minority Depositary Institutions (MDIs) now offer Zelle through their apps, in part because of rebate programs Zelle has made available to them through bank technology platform resellers, he said.
Another reason some smaller institutions have cited for not adopting Zelle is concern about fraud.
Existing bank regulations protect consumers against unauthorized transactions, but in a spate of highly publicized incidents, some Zelle users unknowingly authorized funds transfers through the app to criminals posing as bank agents. A wave of consumer-initiated lawsuits is making its way now through the courts.
The Consumer Financial Protection Bureau is currently weighing whether banks must provide protections for consumers caught in scams, while financial institutions hold that they aren’t liable when a consumer incorrectly sends funds to the wrong person.
Despite negative publicity about Zelle scams, the percentage of Zelle transactions involving fraud or scams is less than 1% and shrinking, according to Ko.
Early Warning this year has increased support for consumer education through banks and directly targeting Zelle users, urging them to only send payments to people they know. Early Warning also encourages banks to add extra confirmation steps when users send money to first-time payees.
“We call it smart friction, getting consumers to verify transaction details before sending that first payment,” Ko said.
Early Warning doesn’t require banks to make Zelle users double-confirm transactions to first-time payees, but most do, according to Ko.
Ko also believes the U.S. government should put more effort into prosecuting scam perpetrators and also coordinate cell phone and financial services industry efforts to prevent scammers from spoofing phone numbers and email addresses.
“We think these are really important areas where the government could play a role in conjunction with private industry and cell phone networks to help block payment scams,” Ko said.
The Fed’s recent announcement about plans to go live with FedNow, the government’s instant payments network, will likely be a positive for Early Warning, Ko contended.
“We work very closely with the Fed and we expect that when FedNow is ready as expected next summer we’ll support it as another payment rail, not unlike how we support ACH today and RTP now,” Ko said.
Comments are closed.