A mobile platform under development by major banks that’s often cast as a challenge to PayPal’s Venmo also might show how evolving technologies could remodel — and speed up — the nation’s payment system.
Zelle, backed by JP Morgan Chase, Bank of America, Wells Fargo and others, is likely to make its initial mark in the person-to-person (p2p) market that is Venmo’s bread and butter, with transferred funds available within minutes in a recipient’s bank account rather than the following business day.
It could have an even greater impact on the business-to-business and business-to-person payments that dwarf p2p. Activities such as vendor and bill payments, insurance payouts, payroll and check deposit “are all scenarios where Zelle could be applied,” Jeremiah Glodoveza, vice president of communications for Zelle’s operating company, Early Warning Services, told Bloomberg BNA in an email.
“We’re trying to make it faster, easier, safer for people to send, receive, request, flip money,” Glodoveza said.
Zelle comes as the U.S. is moving to catch up with the U.K. and other countries such as the Singapore, Australia and Canada that have strategies or initiatives for adopting faster payments, Jeff Stehm, a Federal Reserve Board alum and payments expert with the Promontory consulting firm, said.
“A number of national governments is sending clear signals to the banking industry about the direction they want to head in,” he said.
The Zelle project was cited today in a speech on the evolving payments system by Cleveland Fed President Loretta Mester, in Chicago. She also mentioned plans by The Clearing House, a bank-owned company and association, to roll out a platform with features similar to Zelle’s later this year.
In 2015, the Fed set up the Faster Payments Task Force “to identify effective approaches for implementing safe, ubiquitous, faster payment capabilities” across the nation’s $180 trillion-a-year non-cash payment system, which includes credit, debit and prepaid cards, paper checks, wire transfers and electronic Automated Clearing House (ACH) transactions. Such ACH transactions include payroll direct deposits and payments of mortgages, insurance premiums and other bills.
“From the faster payments perspective, it's taking a very broad view,” Ryan Zagone of Ripple, a member of the task force steering committee, said of the Fed venture.
“It’s very much a forward-looking, moon-shot take.”
Early Warning, based in Scottsdale, Ariz., is a privately held company and is home to Zelle, whose backers include Bank of America, BB&T, CapitalOne, JPMorgan Chase, PNC Bank, U.S. Bank and Wells Fargo. Early Warning has provided its bank owners for years with fraud and identity protection services and in 2016 acquired clearXchange, an electronic money-transfer service that was owned by several of those banks.
Venmo allows users to send money to other Venmo enrollees via a smartphone app. Zelle is starting out as a money-transfer service embedded in the mobile banking apps of the customers of its participating banks, with the Zelle brand appearing within a few months.
Later, Early Warning intends to offer Zelle as a stand-alone smartphone app, eventually accessible to anyone with a bank account. Money can be sent to a cellphone number or email address. Fees charged, if any, are up to the individual banks.
Much of the attention on faster payments has focused on the ACH system and its shift to same-day transactions. The ACH system, which accounts for one-fifth of electronics payments in the U.S., introduced same-day credits, such as direct deposits of paychecks, last year. It plans to add same-day debits, such as automatic withdrawals for insurance premiums, in the second half of 2017.
The ACH is a batch-processing system, in which transactions are accumulated for processing at predetermined times, so even its same-day operations can mean a lag of several hours from start to finish. Zelle and other mobile platforms can provide processing in real time, or very close to it.
“The next generation has grown up with laptops and iPads and smartphones,” Stehm said, “and they get everything instantly.”
Those consumer expectations reinforce the faster-payments push from governments, and for banks, additional pressure is generated by market competition from nonbanks, such as PayPal, Stehm said.The task force has developed 36 criteria for payment solutions. “It puts a stake in the ground for what a future system should look like,” Zagone said.
The task force is evaluating 19 proposals submitted for review, with the results to be announced in mid-2017.
Zagone is head of research for business development at Ripple, a San Francisco developer of distributed ledger technology, and his company submitted a proposal to the task force for real-time cross-border payments and a system for interoperability among the multiple domestic solutions expected to come forth. Early Warning did not submit a proposal, but it calibrated Zelle to meet the criteria, Glodoveza said.
(Corrected description of Early Warning's ownership and Ripple's name.)
To contact the reporter on this story: Gregory Roberts in Washington at gRoberts@bna.com
To contact the editor responsible for this story: Michael Ferullo at MFerullo@bna.com
Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.
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