Zelle (payment service)
|Services||electronic funds transfer|
Zelle is a United States–based digital payments network owned by Early Warning Services, a private financial services company owned by the banks Bank of America, BB&T, Capital One, JPMorgan Chase, PNC Bank, U.S. Bank and Wells Fargo. The Zelle service enables individuals to electronically transfer money from their bank account to another registered user's bank account (within the United States) using a mobile device or the website of a participating banking institution.
The Zelle instant payment service was launched in June 2017. Previously, the Zelle service was known as clearXchange, which offered payment services through member financial institutions and a website. Launched in April 2011, clearXchange was originally owned by Bank of America, JPMorgan Chase, and Wells Fargo. After Capital One and US Bank joined as additional partners, clearXchange was sold to Early Warning Services in January 2016. In December 2017, all clearXchange accounts for person-to-person payment services were rebranded as "Zelle", and clearXchange users began being required to recreate their profiles in Zelle to continue using the service.
- In April 2011, the clearXchange service was launched. It was originally owned and operated by Bank of America, JPMorgan Chase, and Wells Fargo. The service offered person-to-person (P2P), business-to-consumer (B2C), and government-to-consumer (G2C) payments.
- For person-to-person payments, clearXchange enabled users to send money to other registered users having accounts at participating banks in the United States. Users accessed the network within the websites and apps of member financial institutions, and through clearXchange's website. The network connected with existing bank accounts, so consumers would not need to fund a separate account to use the service. This feature and the lack of fees for using the service were highlighted as advantages for competition with other person-to-person payment services such as PayPal, Popmoney, and Square. The system associated each user bank account with an email address and mobile phone number, so only the recipient's email address or mobile number was needed to send money directly from a bank account to the bank account of another person who had signed up for the service.
- Over time, the number of financial institutions that were affiliated with clearXchange grew to include various other banks and credit unions. Capital One and US Bank were added as additional owner-members.
- In June 2015, clearXchange announced the availability of a real-time payment system. However, some transactions could take as much as five days or longer to be completed.
- In January 2016, clearXchange was sold to Early Warning Services. Early Warning Services is owned by Bank of America, BB&T, Capital One, JPMorgan Chase, PNC Bank, US Bank, and Wells Fargo.
- In September 2017, Early Warning Services released the Zelle payment system and mobile app and announced that all clearXchange "person-to-person" payment service accounts would be deactivated in December 2017. After that, clearXchange stopped supporting person-to-person payments but has continued to provide payments from companies and government entities to certain customers. The company encouraged the former users of clearXchange to sign up for the new Zelle service. As in the former clearXchange service, payees are identified in the Zelle service by an association between the recipient's bank account and an email address or mobile phone number. Money sent to a registered payee who has an account at a financial institution that is a member of the Zelle network is typically available to the recipient "within minutes".
The Zelle service
The Zelle service is intended for payments to those whom the payer already knows and trusts adequately, and the service disclaims any responsibility for goods and services sold through the system..
Zelle users can send money to other registered Zelle users. (They can also attempt to send money to unregistered recipients, in which case the intended recipient will receive an invitation to sign up for the service in order to complete the transaction.) Users access the network within the websites and apps of Zelle-participating U.S. financial institutions and through the Zelle mobile app. To register with the Zelle mobile app, users must enroll a supported MasterCard or Visa-branded debit card issued in connection with a U.S. bank account. The app requires a very large 440 MB of space to install on an Android smartphone. Zelle does not have a desktop equivalent app.
The network connects with existing bank accounts, so consumers do not need to fund a separate account to use the service. Only the recipient's email address or mobile number is needed for a user to send money directly from their bank account to the recipient's bank account.
Each email address or mobile phone number may only be actively enrolled in Zelle to receive payments at one financial institution. To register at multiple banks, users need to provide different email addresses or mobile phone numbers for each.
There are limits on the dollar amount and frequency of transactions allowed on Zelle that are imposed by the banking institution associated with the account being used. For example, transfers from a Wells Fargo funding account are limited to $2,500 per day and $4,000 in a 30-day period, and lower limits apply when using the Zelle mobile app rather than the bank's self-operated services. Transfers from a Chase checking account are limited to $2,000 per day and $16,000 per calendar month.
Payments made using Zelle cannot be canceled (unless an attempt was made to send a payment to someone who has not enrolled in the service).
The website for Zelle that was launched in June 2017 says that "Transactions between enrolled Zelle users typically occur in minutes. If your recipient is not yet enrolled with Zelle, it may take between 1 and 3 business days after they enroll."
Competition with PayPal's Venmo service
The Zelle service's principal competitor is PayPal and its Venmo payment service. Venmo is more popular, based on public awareness, opinion polling, and active engagement with users, but Zelle processes a much larger dollar volume of money transfers -- reportedly US$75 million in its first year, 2017.
The two services work very similarly from the user's perspective – e.g., both services use email addresses and mobile phone numbers to identify recipients, but Venmo lacks the direct integration with banking institutions that Zelle has, and Zelle money transfers are typically processed more quickly.
Starting in January 2018, Venmo began to also offer a more rapid transfer option than its typical 1–3 day transfer service, but Venmo charges a fee for the service, while Zelle-affiliated banks currently do not.
The Zelle network itself does not charge users a fee for money transfers. Banks are allowed to charge a fee for Zelle transfers involving their accounts, but they have generally not chosen to do so.
Venmo requires its users to set up an account in its system that is separate from an ordinary banking account and is not insured by FDIC or NCUA, which banking accounts are. The Venmo account can be linked to a bank account so that necessary funds will be automatically withdrawn from there. However, funds can only be withdrawn from a Venmo account by first transferring them to a bank account and then withdrawing the money from the bank account (a process that adds an extra step and involves some additional delay and possibly a fee). In contrast, Zelle transfers money directly between bank accounts, so it requires no separate account or extra steps to obtain access to funds. Zelle is also accessible through banking institution websites and apps as well as through the separate Zelle mobile app.
Venmo payments can be canceled before they are finalized. This provides some ability to correct accidental payments and rescind transactions that have not proceeded to the satisfaction of the payer. However, it has also enabled some scammers to exploit the cancellation feature on Craigslist and in other contexts by appearing to transfer money and then canceling the transaction before it is finalized. Zelle payments to a registered user cannot be canceled.
The Zelle Network includes more than 100 participants, including the network partners MasterCard and Visa; the processor partners CO-OP Financial Services, FIS, Fiserv, and Jack Henry & Associates; and numerous financial institutions.
The Zelle service has received publicity for numerous account security and fraud incidents in which users' accounts were compromised, or created without authorization, enabling payments to be intercepted or fraudulently redirected. The instant funds transfer, and the lack of default two-factor authentication, and use of identification through easily co-opted phone numbers or e-mail addresses, leave users vulnerable to deceptive misdirection of funds, or money instantly lost in a fraudulent or erroneous transaction, with essentially no practical or legal recourse for the victim. In some cases, bank customers have had their bank accounts wiped out without even knowing that there was a Zelle service associated with the account. While some Zelle fraud is compensated by the banks involved, some is not, depending upon the bank and its policies, and the specifics of the incident.
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