Mobile payments have grown into a big market. Peer to peer mobile payment services are used by almost everyone. When friends go out, they split the bill and pay each other using mobile wallets or mobile payment services. When college students split rent for housing or utility payments, they turn to mobile payments. Mobile payments are also used for purchasing goods and services from small sellers or shops. A few years ago, mobile payment apps were pretty new and used only by a smaller tech savvy group (though SMS based payments have been popular in Africa since several years). Services like Venmo (now owned by PayPal), Square Cash and Google Wallet have now emerged and most consumers are now using these services. In the last few years, the usage has grown from handful of tech savvy users to almost every consumer. This has gotten attention from the big banks as they wish to get a piece of the pie and enter the mobile payments market.
Some of the largest banks in the US have collaborated to create a centralized database of consumers using their banking products and share information such as fraud or misuse of bank accounts. This is the EWS (Early Warning Services) system. Banks such as Bank of America, Wells Fargo, Chase, Capital One and others have collaborated on the EWS system so they can share data and reduce risk. Now EWS has announced that they are launching their own mobile payments app called Zelle. The landing page of Zelle claims that it will allow users to “send and receive money in minutes”, which is possible as the service is run by the big banks. The main problem with current apps is that the money goes from the sender’s bank account to the mobile payment provider’s bank account, and then to the recipients’ bank account. This causes some delay in transfers (usually a few days), even though you can see the balance in the app immediately. Zelle might be able to eliminate this delay as its run by the big banks, and money transfers could be instant. So the sender’s bank account would be debited and recipients’ bank account could be credited in minutes. This would also eliminate the middle-man (transfer to mobile payment provider’s account), hence reducing costs.
Zelle seems to be a better product because of its speed, but the question remains if consumers would use it over existing apps. A majority of the consumers using these services are the younger generation that care about the social impact of the products they use. While they pay attention to costs, they also pay attention to who benefits from their business. If they don’t want the big banks to be profiting from their business (because of the perception of big banks), then they might decide to ignore the service and stick to existing apps like Venmo and Square Cash.
The new Zelle app is planned to launch in October 2016. More information can be found of their website here.