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BirdsEye View

to zelle or not to zelle

The mobile peer-to-peer (P2P) space has grown significantly over time, and recently exploded with the COVID accelerator.  Venmo, Zelle, and Cash App (a Square product) all saw unprecedented growth, which was further fueled by continuous innovation.

There are many misconceptions about the space.  For example, many banks do not see customers clamoring for P2P payments, so they assume the demand isn’t there.  In reality, the demand is extremely strong, and customers are moving to alternative providers to meet that need.  That, in turn, could result in customer defection altogether.

Another misconception relates to the market share of the various players.   At our forums, the consensus is that Venmo continues to lead the field.  In reality, Zelle has taken over some time ago.  Zelle expected to have 48.2 million users in the US alone by yearend, making up 18.5% of the population. Projected growth through YE2025 reaches 63.0 million users.

Zelle

Zelle’s position in the P2P space is unique. It is owned by seven of the largest US banks, including Bank of America, Wells Fargo, and JPMorgan Chase.   It had a ready-made customer base from Day One. Other banks have partnered with Zelle, and more are joining the network daily. Last year alone, Zelle added 457 new financial institutions to its network, including a number of small banks and credit unions through a partnership with Fiserv.  The service main advantage is real-time transfers.  While this increases the risk, it is a meaningful competitive advantage relative to Venmo, Pop Money and any other P2P service currently on the market.

Zelle is also making inroads into the small business market, currently dominated by Square both through the payment device and their app Cash. Small businesses use payment services to conveniently pay their bills, take care of healthcare payments for their employees and pay contractors. Some even use the product for its invoicing features.  The real-time feature of Zelle is especially important here, as small businesses want to optimize their cash velocity.  Square is now being used to pay gig-economy participants daily, at the end of their shift, and Zelle promises to effectively compete with that position.

About $272 billion transacted via Zelle’s mobile app in the US in 2021. By the end of 2022, that figure is expected to double and exceed $500 billion.  It currently already has 35%+ share of the P2P space. 

Venmo

Venmo’s platform was designed to capture for social payments using social media style (such as the icons and emojies) and skews toward a younger audience, particularly millennials. It fits better the peer-to-merchant transactions and to small transaction size. This year, there will be 77.8 million Venmo users in the US, making up nearly 30% of the population. The user base is expected to continue its steady growth and to surpass 100 million users by YE2024.

Out of the three key players, Venmo will make up the highest share of the P2P space: Almost 58% of US P2P mobile payment users will be on its platform by the end of 2021.

In its Q4 2020 earnings call, PayPal—Venmo’s parent company—said that the mobile payments app would get a slew of upgrades, including support for buying and selling cryptocurrencies, a savings feature, and budgeting tools. PayPal intends to integrate Honey, a coupon and savings service, into its main platform, as well as within Venmo’s platform.

In 2020, $148.80 billion transacted via Venmo in the US, and volume is expected to exceed $300 billion by YE2023.

Cash App (Owned by Square)

Nearly 30% of US P2P mobile payment users on Cash App this year.  The app is easy to use and has savings, credit card (including the instant deposit cash card, which can be used in stores) and other features.  Its convenience is hard to compete with, and Zelle copied the exact format for that reason.

Cash App had stored balances of approximately $2 billion by YE2020 from its customers, with much of the revenues for Square coming from Bitcoin revenues (the platform continues to shift into cryptocurrency).

By the end of 2022, nearly $128 billion will transact via Cash App in the US, and in 2025, that figure will surpass the $200 billion mark.

Future Outlook

2020 was an extremely strong year for the payments space, as consumers became more comfortable using mobile P2P payments by necessity, and not just within social settings. For many, P2P payments became a replacement for traditional money transfers, as well as for cash and checks.  Most notably, small businesses – the hairdresser, the nail salon, the lawn mower or the corner hot dog strand – all found Square/Cash a convenient tool to accept payments remotely, a COVID-era essential condition.

Each of the three services described above is aiming for a somewhat different target segment:  Zelle aiming toward larger payments (rent, car payment) and more mature users; Venmo aiming for the younger generations and payment sharing in social settings; and Square starting from a micro business base and spreading into the small business and consumer spaces.

By YE 2023, the total mobile P2P volume is expected to exceed $1T, a reflection of a paradigm shift in both consumer and small business behavior.

Bank Implications


There are numerous facts, observations and insights in this key space that are worth sharing:

No apparent customer demand at your bank does NOT necessarily mean there is no demand.  It might mean that your service is so inconvenient that your customers are being pushed to use a more convenient service elsewhere.  The demand is definitely there.  Accept it.

Waiting for your core provider to improve their app integration, or even produce their own version of a P2P vehicle, puts you at risk of losing your customers who will silently vote with their payments (or lack of them) without your knowledge.

Do not expect Zelle, Venmo or square to change their contract.  It is canned and unchangeable for any user.  These services can be expensive, and some are intrusive and demand to get your customer data.  But they are table-stakes and non-optional.

Be clear how you will position the service(s) you pick and where you can market those payment services to your customers’ delight and your advantage.  For example, can you use Zelle for business to help large check issuers reduce their costs by using your service for a large number of small payments?  Can you use Square to cement your relationship with small-time contractors?  Even when convenient P2P, B2P and P2B are table-stakes, your deployment strategy needs to be clear and well-articulated before you launch the service. 

E-Payments and real-time payments are here.  We can’t afford to sit this sea-change out.