P2P payments are no longer an everyday essential reserved just for millennials. There has been immense growth in the P2P marketplace in terms of the volume transferred, as well as the number of users on these platforms. Paypal’s Venmo was the first P2P app to gain popularity, but now faces competition as many other services have started popping up. Zelle, launched just one year ago, to the surprise of many, overtook the P2P market quickly with their real-time payment service. In 2017 Zelle processed $75 billion, whereas Venmo came in at less than half of that with $35 billion in transactions. Considering Venmo revolutionized P2P payments, what is it that Zelle has done to gain such a following?
Rapid, Real-Time Payments.
Unlike Venmo, Zelle offers instant payment straight to your bank account. While Venmo might take up to 72 hours to transfers funds, Zelle is able to do so in minutes. This is especially convenient for people who prefer to use P2P to pay larger transactions such as monthly rent and utilities. When splitting the cost of rent, whoever takes on the burden of submitting the payment could be out hundreds of dollars until the transaction is processed. In situations like this, it’s no surprise that Zelle is the frontrunner.
However, these quick and convenient payments come at a cost. Security is a pain point for Zelle, as it’s much harder to verify transactions when they’re processed instantly. Hackers target Zelle, and users have experienced the consequences. According to Genevieve Gimbert of PWC’s financial crimes unit, there are some banks that average a 90% fraud rate for Zelle transactions. In these cases, Zelle was implemented with little to no authentication procedures, which of course, is not recommended by the Early Warning Services LLC subsidiary. Zelle preaches security because the platform is backed by banks, however, instances of theft are a direct result of the bank's connectivity through the platform. With so many banks using Zelle, it has become increasingly difficult to halt bad transactions, especially when considering how quickly Zelle transactions are authenticated and processed. Although security remains an issue, it has not impacted Zelle’s success. Banks that implement Zelle with security measures - such as two-factor authentication and user activity monitoring - have provided much more seamless experiences for their members.
Cultivating Credit Union Support.
Despite inconsistencies in security, people are still registering for Zelle at record-high rates, largely in part due to adoption by credit unions. While Venmo has a stronghold on millennials, Zelle appeals to a much larger demographic. This has made it a desirable service for credit unions to offer their members. Although credit unions were hesitant about P2P payments at first... many saw P2P as a big bank only service. But with a platform like Zelle, it helps connect big banks and small credit unions alike. Zelle has begun partnering with credit unions to create pre-integrated solutions that will make implementation cost-effective and efficient. Credit unions are already seeing returns with Zelle as members begin to notice the platform and look for integrations with their banking services.
Zelle’s growth is not expected to plateau any time soon, as it’s anticipated to surpass Venmo in users by the end of 2018. Venmo will continue to be a player in the P2P game, however, Zelle is offering features that members need, want, and prefer. As financial institutions iron out the kinks in their security protocol it could become the ultimate P2P application, offering instant and secure payments.