By Ray Birch
SCOTTSDALE, Ariz.—With all the hype around Zelle, should every credit union be jumping onboard the rapidly growing P2P solution?
Not so fast, say some payments experts, pointing to numerous issues that need to be thought through.
Zelle has taken off over the last year, with reports showing double-digit growth for the P2P platform from Q2 to Q3 of 2018. The solution tallied approximately 116 million transactions in Q3 2018 for a total of $32 billion in payments, the company announced. Transaction volume increased 16% quarter over quarter, and total money moved increased 13%. Year over year, transaction volume on the Zelle Network increased 83%, while transaction value increased 67%.
Some analyses have indicated that with the number of large banks jumping on board, Zelle will soon serve 70% of the banked population.
But Tony DeSanctis, senior director, co-lead, payments practice at Cornerstone Advisors, told CUToday.info it should not be a slam dunk for Zelle within the credit union movement, that Zelle numbers may not accurately reflect consumer adoption, and that credit unions may prefer to align with Venmo, Square Cash or even Google Pay.
DeSanctis’ view is it’s wise for a credit union to keep its options open, especially since Zelle increases costs for the CU while Venmo and Square cash provide a small revenue stream.
“The challenge with Zelle, when looking outside of the top five to seven banks that own the Zelle platform, are the economics of the Zelle transaction,” said DeSanctis. “It actually costs you money, not unlike a bill pay transaction. So if I am not one of these big banks behind Zelle, I am adding yet another feature and benefit for my members that’s costing me money.”
Pros & Cons
In assessing the pros and cons of aligning with Zelle or another P2P solution, DeSanctis pointed out that with all the big banks behind Zelle, the platform is strong, representing a big percentage of consumers.
“Here is the rub, from a pure transactional economics perspective, I think Venmo and Square Cash make more sense for credit unions,” said DeSanctis. “Making money instead of spending money is always a good strategy.”
But, again, not so fast, as there are challenges with choosing Venmo or Square Cash, he said.
“When you go to the Venmo or Square Cash websites, the first thing you see is them promoting their debit card,” said DeSanctis. “They are encouraging usage of their own cards, so that is direct competition for credit unions, especially if these folks get into the lending business. And we just saw Square file for an industrial loan company charter in Utah, so they want to get deeper into banking.”
Lack of Protection
That said, DeSanctis also pointed out credit unions are already competing with the mega-banks.
“So, is this worse than competing against the big banks that own the Zelle platform? You have to give them as much of your data as you would Venmo or Square Cash. You are not protecting yourself any better in choosing any of these P2P solutions,” he said. “Bottom line, and since my roots are in finance, I always like to make money rather than spend it, when I can.”
Not a Simple Decision
Still, the decision is not that simple, acknowledged DeSanctis. He said each credit union before it makes its decision must carefully examine its member base to learn where their P2P preferences lie.
“To what extent is Zelle needed at the credit union if members are already aligning with Venmo or Square Cash?” he asked. “This is where data analytics is key. How many of your members are already using Venmo or Square Cash. You can tell because those transactions are typically tagged Venmo or Square Cash, and even Zelle. You can figure out what the adoption rate is within your membership and determine your P2P strategy.”
He added that such analysis could also lead the CU to align with Zelle, even though he believes when the credit union digs into its member data it will likely not find a large number of Zelle users.
Inflated Numbers 1.0
DeSanctis contends Zelle usage, as reported by the bank-backed P2P platform, is inflated, based on other data he has seen. He noted some reports suggest roughly 70% of Zelle transactions never leave the financial institution that originated them.
“And, in reality, as a credit union you don’t want to do that, because why pay for a Zelle transaction when you can just do an internal transfer,” he said. “Yes, the Zelle adoption is there. And Zelle is big. But you need to be aware and monitor adoption of the platform by your members. I don’t think there is an urgency now to put Zelle into your credit union, to do it ASAP, especially if your demographics and data don’t warrant it.”
Inflated Numbers 2.0
Lou Grilli, AVP of product development and thought leadership at Trellance, takes a similar stance. He said Zelle reports numbers that are somewhat inflated.
“Both Zelle and Bank of America have admitted that the number of transactions reported include those originated and received by that bank. Given this, the actual true volume may be closer to half,” he said. “With all that said, users are not limited to picking just one. The typical Millennial uses Venmo and Square cash and Facebook messenger. The only limitation is that only iPhone owners can use Apple Pay Cash. There is pent-up demand to replace cash and check with digital P2P money, and there’s not a one-size-fits all. Zelle may not be a good fit for some credit unions, due to Zelle’s bank ownership, the requirement to submit data to Early Warning (which owns Zelle), and the fees for a free-to-users service.”