Three years after Venmo hit the mainstream, the big banks are finally getting around to putting out their own peer payments service, called Zelle. Launching in early 2017, it’ll compete with Venmo and Square Cash.
While the credit card’s triumph over cash should have warned retail banking titans that apps would supplant paper money in person-to-person transactions, too, the payment app boom caught the big banks on their back feet. And as they slept, payment processing middlemen like PayPal and Square saw the writing on the wall and launched Venmo and Square Cash. These services, which are free to use—unless you use a credit card—make sending money to friends or splitting a restaurant bill quick and easy.
Zelle isn’t really the first foray by the banking industry into peer-to-peer payments. Four of the big banks—Wells Fargo (WFC), JPMorgan Chase (JPM), Bank of America (BAC), US Bancorp (USB)—already own a network called clearXchange to facilitate these types of payments. In September, Citibank joined as well, giving the group substantial coverage throughout the industry, which could already facilitate transactions from 7,500 banks.
Even though the clearXchange network processed $16 billion in Q1 2016—far more than Venmo’s $3.2 billion during that same time—it’s effectively decentralized and diluted. Instead of one clearXchange app, with its own branding, users sign up through individual banks and download individual apps like Chase QuickPay.
As the banks used this collective network and bank-like (read: not digital and sleek) interface, the digital upstarts were growing like crazy, developing a massive following. Though Venmo’s first-quarter payment volume was smaller, transaction volume was up a whopping 154%.
Furthermore, clearXchange’s $16 billion in payment volume against 46 million transactions gives an average transaction amount at $348, a number that sure doesn’t suggest habitual use by friends for settling a tab.
Zelle aims to rebrand the diluted clearXchange network into one solid product with one name, united and ready to conquer Venmo and Square. But even with the power of major banks behind it, it’ll face an uphill battle against PayPal’s Venmo given its adoption success and ever-firming foothold in contemporary culture.
But the banks—currently 19 banks and credit unions are participating—do give Zelle a trump card in its fight to poach Venmo users and fresh users not yet serviced by an app: the ability for consumers to pay each other instantly. As a product of the banks themselves, Zelle’s participating institutions will guarantee the funds, even if they haven’t arrived yet.
For friend-to-friend transactions, this may not be more than a detail, since it may not particularly matter if the transaction clears tomorrow or the next day for friends settling up a bar tab. But for actually approximating physical cash, an instantaneous transaction is vital. While cash doesn’t offer any buyer protection, at least the receiving party is never worried that the it’ll will self-destruct the day after the deal—something that has plagued Venmo in the past with retracted payments. In practice today, Venmo is more akin to always having your checkbook handy. Of course, Venmo could change too by the time Zelle goes live. And since it’s not going to be a subscription-based service, there could be room on phones for both.
So will this cost people? Zelle says it’s not charging a fee, and that pricing would come from the partners. But as of now, the partners aren’t charging any fees either, which is table stakes for competing with Venmo. Like most emerging technology, Zelle will probably look for users first and monetize later. Or, since its parents are rich, the costs of providing efficient payments could simply be part of the banks’ cost of doing business—like your free checking account.
Ethan Wolff-Mann is a writer at Yahoo Finance focusing on consumerism, tech, and personal finance. Follow him on Twitter @ewolffmann.