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BirdsEye View

zelle's growing popularity with p2p - users benefit banks in surprising ways

 Steve Cochio, previously from American Banker and now at The Financial Brand, writes a lot about Zelle.  His insights are useful in developing a deeper understanding of how Zelle fits into your bank’s payment strategy.  The article below is based upon his most recent report.

Zelle began as the banking industry's answer to PayPal, Venmo, Cash App, Apple Cash and more. Usage continues to grow among consumers and, lately, small businesses too. 

Five years in, Zelle continues attracting new users and increasing volume. With deeper penetration come attractive side benefits to those that offer it, helping to increase efficiency and lower the cost of funds.

Number of Zelle ransactions on the bank-owned Zelle Network rose 26% to 2.3 billion, and Transaction value rose 28% to $629 billion, in 2022. This strong growth reflects a 40% increase in the number of banks and credit unions that have joined Zelle to a total; of 1800 institutions. More consumers are enrolling in both old and new Zelle network participating institutions, and use of its person-to-person payments services is also up, and so is its use for small business transactions.

Zelle’s founding banks’s huge customer bases is the foundation for the huge 80% of all Americans with checking accounts can now access Zelle via their financial institution’s mobile. Adding in those who have the Zelle app on their phone brings the potential audience to 97% of checking account holders, according to Al Ko, chief executive officer of Early Warning Services.

118 million customers are enrolled with Zelle and 69 million monthly unique Zelle users, according to Ko. By contrast, Venmo, which launched more than a decade ago, has 90 million active accounts, with 60 million being active monthly.

The bulk of the transaction growth for 2022 came from adding new users at institutions that were already live on Zelle. Ko says larger numbers of those customers have been adopting Zelle. A Curinos study, sponsored by Early Warning, notes that Zelle users have significantly higher engagement with their financial institutions, which may encourage proactive marketing of the service by use banks

 
 

“People are more likely to use Zelle as more and more other banks go live because they understand that the friction of knowing that you can receive a Zelle payment that I’m about to send you is going down,” says Ko, in an interview with The Financial Brand (AB:  This is the network effect so many of us mention).

P2P service in general is gaining more devoted users, according to a Cornerstone Advisors research report that Zelle sponsored. When the consulting firm asked consumers how they would react if their primary financial institution stopped providing P2P capability, three out of four said they would take action. Those actions included:

  • Use an account with a different institution more frequently 30%
  • Close my account with the primary institution 24%
  • Open an account with another bank or credit union 23%
  • Use the primary institution less frequently 18%
  • Be less likely to recommend them to friends and family 17%
  • Complain to them 14%

How Small Businesses Factor into Zelle’s Growth Plans

Ko declines to predict 2023 numbers, but says he anticipates adding hundreds more banks and credit unions to the network and growing business payments further. “We’re in the third inning of a much longer game,” he says.

There are many potential consumer users yet at institutions that only recently went live with Zelle who can be turned into active users. Zelle also has plans to expand services for small businesses. Cornerstone found that 16% of its consumer sample identified as small business owners and about half of them accept some form of digital payment to provide their own customers with a convenient form of payment.  Many are consumer/owners, which your bank’s small business division already knows.

Zelle reports that businesses received 150 million payments in 2022, totaling over $72 billion. Those represent increases of 77% and 84%, respectively, compared with 2021. In addition, small businesses are tapping Zelle to pay their employees and their rent. The number of unique small business senders rose by 66% compared with 2021. They accounted for 133 million payments amounting to $87 billion in 2022.


Zelle transactions, as well as adoption of other digital channels, said BofA’s CEO, “allowed us to run the business with fewer employees and lower our cost of deposits ratio below 120 basis points.”

Zelle draws on checking accounts without creating checks which obviates the need for cash in the transactions Zelle facilitates. This reduces both check and ATM operations.

Truist’s chairman and CEO, Bill Rogers, said: “Zelle continues to represent an increasing percentage of our overall transaction mix and highlights the importance of continuing to invest in money movement capabilities,” Rogers said.

Current consumer choices for sending money digitally to people or business are:

  • PayPal 40%
  • Cash App 22%
  • Venmo 19%
  • Zelle 16%
  • Apple Pay 13%
  • Google Pay 11%
  • Facebook Pay 7%
  • Samsung Pay 3%

Cornerstone found that P2P transactions, both on the sending and receiving side, clustered at $250 and below, with about half of transactions below $100. Zelle skews just a little larger, in part because of the growing number of business-related transactions. Zelle’s average transaction size has hovered in the high $270s.

There are many banks in our forums that resist the use of Zelle, primarily due to anecdotal information about Venmo.  The purpose of the Zelle articles is to shine the light on the data-based performance of Zelle and its potential contribution to lowering transaction costs and increasing participation in the payments space for all banks.