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Zelle

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For other uses, see Zelle (disambiguation).
Zelle
FormerlyclearXchange
Company typePrivate
Industry
Founded2016; 8 years ago (2016)
Headquarters
Scottsdale, Arizona
,
United States
ServicesElectronic funds transfer
ParentEarly Warning Services, LLC
Websitezellepay.com

Zelle (/zɛl/) is a United States–based digital payments network run by a private financial services company owned by the banks Bank of America, Truist, Capital One, JPMorgan Chase, PNC Bank, U.S. Bank, and Wells Fargo.[1][2][3][4] 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. There is currently no fee or charge on the transaction.[1][3]

The Zelle service was launched in June 2017,[1] as the successor to the clearXchange payment service. Zelle has expanded, and as of 2022 eighty percent of the US population could connect to Zelle through their banking app, with support by over 1600 financial institutions.[5] It has been criticized for being a platform that has facilitated online financial fraud in the United States. In 2022 at a Senate Banking Committee hearing it was censured for not giving refunds to people who were tricked by criminals using Zelle.

History

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In April 2011, the clearXchange service was launched. It was originally owned and operated by Bank of America, JPMorgan Chase, and Wells Fargo.[6][7] The service offered person-to-person (P2P), business-to-consumer (B2C), and government-to-consumer (G2C) payments.[8]

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,[6] 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.[7] 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.[6][7] 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.[9][10][11]

The number of financial institutions affiliated with clearXchange grew to include other banks and credit unions. Capital One and US Bank were added as additional owner-members.[10][11] In June 2015, clearXchange announced the availability of a real-time payment system.[12][13] Some transactions could take as much as five days or longer to be completed.[14]

In January 2016, clearXchange was sold to Early Warning Services, LLC,[15] owned by Bank of America, Truist, Capital One, JPMorgan Chase, PNC Bank, US Bank, and Wells Fargo.[2]

In September 2017, Early Warning Services released the Zelle payment system and mobile app[16] 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 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.[17] 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.[17] 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".[18]

In March 2019, Early Warning Services's CEO, Paul Finch, stepped down to work with the Finch Family Foundation, a Phoenix, Arizona, charitable organization. Finch cited his long tenure, the completion of the launch of the Zelle network, and the company's plans to start new projects as reasons for the timing of his departure.[19] In May 2019, Early Warning Services appointed a new CEO, Albert Ko, who was formerly the "chief transformation officer" for Intuit. While with Intuit, Ko was the general manager for the Intuit Mint finance software and an overseer of QuickBooks.[20] The remainder of clearXchange was shut down on July 5, 2022.[21]

The Zelle service has expanded, and as of 2022 processed the largest dollar amount of peer-to-peer payments in the United States every year among comparable services.[5] Zelle had transactions of more $1.6 billion a day, or $1 million a minute, in the first half of 2022.[22] As of September 2022, eighty percent of the US population had Zelle connected through their banking app, with access also available through Zelle's standalone app.[5]

In 2024, Early Warning Services created the Paze digital wallet, to support payments for online purchases.[23]

Service

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The Zelle service is intended for payments to those whom the payer already knows and trusts and the service disclaims any responsibility for goods and services sold through the system.[24][25] Zelle uses ACH to settle the payments overnight, similar to direct deposit.[26]

Zelle users can send money to other registered Zelle users. (If they attempt to send money to unregistered recipients, the intended recipient will receive an invitation to sign up for the service to complete the transaction.) Alternatively, money can be sent to unregistered users using only their checking and routing information with no need to register by the recipient. Users access the network within the websites and apps of Zelle-participating U.S. financial institutions[6] 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.[27]

The network connects with existing bank accounts, so consumers do not need to fund a separate account to use the service.[7] 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.[9] An email address or mobile phone number may be actively enrolled in Zelle to receive payments at only one financial institution. To register at multiple banks, users need to provide different email addresses or mobile phone numbers for each.[28]

A Zelle user can transfer money to a recipient or submit a request for others to send a payment or to split the cost of a payment.[29][30]

There are limits on the dollar amount and frequency of transactions allowed on Zelle imposed by the banking institution associated with the account being used.[24] For example, as of 2020 transfers from most Wells Fargo funding accounts are limited to $2,500 per day and $20,000 in a 30-day period, and lower limits may apply for new payees or when using the Zelle mobile app rather than the bank's self-operated services.[24][31] Transfers from a Chase checking account are limited to $2,000 per day and $16,000 per calendar month, as of 2017.[24][32] 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).[33]

The Zelle website 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."[16]

Competition with Venmo

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The Zelle service's principal competitor is PayPal and its Venmo payment service.[1][34] 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, transferring transactions of more than $1.6 billion a day in the first half of 2022.[22][25][30]

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.[30]

Starting in January 2018, Venmo began to offer a more rapid transfer option than its typical one- to three-day transfer service. Venmo charges a fee for the service, whereas Zelle-affiliated banks do not.[35][36] The Zelle network does not charge users a fee for money transfers.[37] Banks are allowed to charge a fee for Zelle transfers involving their accounts, but they generally do not.[24][35]

Both Venmo and Zelle payments to a registered user cannot be canceled (at least without the explicit permission of the recipient).[38]

Partners

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The Zelle Network has more than 1600 financial institutions, including the network partners Mastercard, Visa and processor partners such as FIS, Fiserv, and Jack Henry & Associates.[39]

Criticism

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The Zelle service has received negative publicity due to fraud incidents where bank customers’ accounts were compromised through social engineering tactics. In these cases, fraudsters set up Zelle accounts in the victims’ names and used them to transfer funds out of the victims’ accounts, often leaving the victims with limited practical or legal options for recovery. [1][40][41][42] In one case, a Florida man pled guilty to defrauding victims of $250,000 by convincing them to make payments using Zelle to reverse purported fraudulent transactions.[43][44] In some cases, bank customers have been compensated by the banks involved, depending upon the bank and its policies and the specifics of the incident. Banks may use secondary confirmation methods such as SMS or otherwise place limits on newly created accounts and transfers to recently added recipients as a preventive measure.[3][25][45][31] Shortly before releasing a critical report,[46] Senator Elizabeth Warren criticized Zelle executives at a September 2022, Senate Banking Committee hearing, both for lack of refunds in cases of fraud, and lack of response to requests for statistics.[47]

Regulatory Action and Fraud Concerns

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In December 2024, the Consumer Financial Protection Bureau (CFPB) filed a lawsuit against Early Warning Services (EWS), the operator of Zelle, along with three major banks: Bank of America, JPMorgan Chase, and Wells Fargo. The lawsuit alleges that these entities failed to protect consumers from widespread fraud on the Zelle network.[48][49]

Key allegations in the lawsuit include:

  • Customers of the three banks named lost more than $870 million over Zelle's seven-year existence due to fraud.
  • The banks and EWS rushed Zelle to market without implementing effective consumer safeguards to compete with apps like Venmo and CashApp.
  • Hundreds of thousands of consumers filed fraud complaints but were largely denied assistance.
  • The banks failed to properly investigate complaints or provide consumers with legally required reimbursement for fraud and errors.

The CFPB is seeking to stop the alleged unlawful practices, secure redress and penalties, and obtain other relief. CFPB Director Rohit Chopra stated that the banks' failure to implement proper safeguards made Zelle "a gold mine for fraudsters".[48]

See also

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References

[edit]
  1. ^ a b c d e Cowley, Stacy (April 22, 2018). "Zelle, the Banks' Answer to Venmo, Proves Vulnerable to Fraud". The New York Times. ISSN 0362-4331. Archived from the original on October 17, 2018. Retrieved October 1, 2022.
  2. ^ a b "Early Warning Corporate Overview" (PDF). Early Warning Services official website. Archived (PDF) from the original on January 12, 2018. Retrieved January 12, 2018.
  3. ^ a b c By. "Here's What You Need to Know About Zelle". www.experian.com. Archived from the original on January 16, 2020. Retrieved October 1, 2022.
  4. ^ "17 Best Online Banks That Use Zelle - A Complete List!". All Finance Deals. May 5, 2022. Archived from the original on May 6, 2022. Retrieved June 9, 2022.
  5. ^ a b c Nunez, Adriana (September 9, 2022). "Zelle's five-year growth is a harbinger for the future of P2P payments". Insider Intelligence. Retrieved March 24, 2023.
  6. ^ a b c d Smith, Aaron (May 25, 2011). "New cash transfer service rivals PayPal". CNN Money. Archived from the original on April 27, 2015. Retrieved July 29, 2015.
  7. ^ a b c d Salmon, Felix (May 25, 2011). "Why clearXchange is great for payments". Reuters. Archived from the original on May 27, 2011. Retrieved July 29, 2015.
  8. ^ Heun, David (July 15, 2015). "clearXchange: We Have the Answer to Real-Time Payments". Payments Source. Archived from the original on June 18, 2015. Retrieved July 29, 2015.
  9. ^ a b Bernard, Tara Siegel (May 25, 2011). "Person-to-Person Payments Get Easier at Big Banks". The New York Times. Archived from the original on March 2, 2016. Retrieved July 29, 2015.
  10. ^ a b "US Bank Latest Owner-Member of clearXchange". PYMNTS.com. March 17, 2015. Archived from the original on July 18, 2015. Retrieved August 1, 2015.
  11. ^ a b "clearXchange rolls out real-time payments". PYMNTS.com. June 15, 2015. Archived from the original on August 6, 2015. Retrieved August 1, 2015.
  12. ^ Bakker, Evan (June 21, 2015). "Here's What Happened in Payments this Week". Business Insider. Archived from the original on August 5, 2015. Retrieved July 29, 2015.
  13. ^ Heun, David (June 15, 2015). "Bank Consortium clearXchange Debuts Real-Time Payments". American Banker. Archived from the original on June 18, 2015. Retrieved July 29, 2015.
  14. ^ "FAQ". clearXchange. Archived from the original on June 6, 2017. Retrieved June 13, 2017.
  15. ^ "Early Warning Completes Acquisition of clearXchange". clearXchange. Archived from the original on February 2, 2017. Retrieved January 27, 2017.
  16. ^ a b "Zelle official website". Archived from the original on November 6, 2019. Retrieved June 11, 2017.
  17. ^ a b "The Zelle App is Live!". Early Warning Services official website (Press release). September 12, 2017. Archived from the original on October 6, 2017. Retrieved November 13, 2017.
  18. ^ "How long does it take to receive with Zelle?". Zelle. Archived from the original on January 12, 2018. Retrieved November 28, 2017.
  19. ^ Crosman, Penny (May 17, 2018). "Zelle founder Paul Finch to step down". American Banker. Archived from the original on March 6, 2021. Retrieved August 6, 2023.
  20. ^ "Zelle operator Early Warning hires new CEO". American Banker. May 30, 2019. Archived from the original on November 8, 2020. Retrieved November 16, 2020.
  21. ^ https://www.clearxchange.com, accessed August 26, 2023.
  22. ^ a b Fitzgerald, Kate (December 22, 2022). "Zelle's rocky rise in 2022". American Banker. Retrieved August 6, 2023.
  23. ^ The Financial Brand https://thefinancialbrand.com/news/payments-trends/what-to-consider-before-joining-the-paze-bank-run-digital-wallet-161687/
  24. ^ a b c d e Bodine, Alicia (February 1, 2018). "Zelle Review: Free and Easy Money Transfers". Go Banking Rates. Archived from the original on February 2, 2018. Retrieved February 1, 2018.
  25. ^ a b c Perez, Sarah (February 16, 2018). "Zelle users are finding out the hard way there's no fraud protection". TechCrunch. Archived from the original on May 30, 2020. Retrieved October 1, 2022.
  26. ^ "How to make ACH payments and wire transfers". www.chase.com. Retrieved July 21, 2023.
  27. ^ "How do I get started?". Zelle. Archived from the original on February 1, 2018. Retrieved November 14, 2017.
  28. ^ "When trying to enroll with Zelle, I received a message saying that I was already enrolled. Why?". Zelle. Archived from the original on February 1, 2018. Retrieved November 14, 2017.
  29. ^ Chatzky, Jean (October–November 2017). "Digital Wallets Are Here to Stay". AARP. Archived from the original on October 2, 2017. Retrieved February 1, 2017.
  30. ^ a b c Lyons Cole, Lauren (January 1, 2018). "Apple Pay Cash won't be the death of Venmo – but I found the little-known alternative that will". Business Insider. Archived from the original on February 2, 2018. Retrieved February 1, 2018.
  31. ^ a b "Zelle Transfer Service Addendum to Wells Fargo Online Access Agreement". Wells Fargo official website. August 25, 2020. Archived from the original on February 11, 2020. Retrieved January 5, 2020.
  32. ^ "Chase QuickPay with Zelle Service Agreement and Privacy Notice". Chase Bank official website. November 12, 2017. Archived from the original on February 3, 2018. Retrieved February 2, 2018.
  33. ^ "Can I cancel a payment?". Zelle official website. Archived from the original on February 2, 2018. Retrieved February 1, 2018.
  34. ^ Sidel, Robin (August 24, 2016). "America's Biggest Banks Have a New Name for Their Venmo-Killer: Zelle". Archived from the original on December 25, 2019. Retrieved February 11, 2020.
  35. ^ a b Kulkarni, Tatjana (February 1, 2018). "Venmo Introduces Fee for Realtime Transfers". Bank Innovation. Archived from the original on February 1, 2018. Retrieved February 1, 2018.
  36. ^ Lefevre, Rob (January 26, 2018). "Venmo's 25-cent instant transfers are now available for everyone". Engadget. Archived from the original on February 1, 2018. Retrieved February 1, 2018.
  37. ^ "Are there any fees to send money using Zelle?". Zelle official website. Archived from the original on February 2, 2018. Retrieved February 1, 2018.
  38. ^ "Cancel Payment". Venmo. Archived from the original on November 12, 2020. Retrieved November 15, 2020.
  39. ^ "Partners". Zelle. Retrieved August 6, 2023.
  40. ^ Nguyen, Vicky; Martinez, Didi; Enoch, Joe; Tak, Michelle (June 11, 2019). "Never used Zelle? Scammers can still use it to drain your bank account". NBC News. Archived from the original on February 26, 2020. Retrieved August 6, 2023.
  41. ^ Sullivan, Bob (April 23, 2019). "Zelle Fraudsters Find New Victim Pool: Consumers Who Don't Even Use Zelle". Money Talks News. Retrieved August 3, 2023.
  42. ^ Cowley, Stacy; Nguyen, Lananh (June 20, 2022). "When Customers Say Their Money Was Stolen on Zelle, Banks Often Refuse to Pay". The New York Times. Retrieved March 18, 2024.
  43. ^ "District of Connecticut | Florida Man Admits Defrauding Zelle Users | United States Department of Justice". www.justice.gov. May 21, 2024. Retrieved July 11, 2024.
  44. ^ Jenkins, Seb (July 3, 2024). "Florida Man Pleads Guilty in Zelle Fraud Case - the Daily Muck". The Daily Muck. Retrieved July 11, 2024.
  45. ^ Matarese, John (October 20, 2019). "How scammers use Zelle to drain your bank account". WCPO. Archived from the original on February 15, 2020. Retrieved August 3, 2023.
  46. ^ Office of Sen. Elizabeth Warren (October 2022). "Facilitating Fraud: How Consumers Defrauded on Zelle are Left High and Dry by the Banks that Created It" (PDF). Archived (PDF) from the original on October 8, 2022. Retrieved October 5, 2022.
  47. ^ Cowley, Stacy (October 3, 2022). "Few Customers Get Refunds for 'Rampant' Zelle Fraud, Senator's Report Says". The New York Times. Archived from the original on October 5, 2022. Retrieved October 5, 2022.
  48. ^ a b "CFPB Sues JPMorgan Chase, Bank of America, and Wells Fargo for Allowing Fraud to Fester on Zelle". Consumer Financial Protection Bureau. December 20, 2024. Retrieved December 22, 2024.
  49. ^ "Early Warning Services, LLC; Bank of America, N.A.; JPMorgan Chase Bank, N.A.; Wells Fargo Bank, N.A". Consumer Financial Protection Bureau. December 20, 2024. Retrieved December 22, 2024.
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