How Does Zelle Make Money?

Zelle is a peer-to-peer payment network that indirectly benefits the banks’ consortium that backs it. Zelle also enables users to pay businesses for goods and services, free for users. Merchants pay a 1% fee to Visa or Mastercard, who share it with the bank that issued the card.

Business Model Element	Analysis	Implications	Examples
Value Proposition	Zelle’s value proposition centers around convenient, real-time, and secure P2P payments. Key elements of its value proposition include: – Real-Time Transactions: Facilitates instant money transfers between users. – Simplicity and Ease of Use: Offers a straightforward and user-friendly platform. – Bank Integration: Enables seamless transactions through participating banks’ mobile apps and websites. – Security: Prioritizes the safety and security of user financial information. Zelle empowers users with a quick and hassle-free solution for sending and receiving money.	Offers a convenient and efficient platform for real-time P2P payments. Simplifies the payment process through user-friendly interfaces. Leverages bank partnerships to enhance accessibility and reach. Prioritizes the security and privacy of user financial data. Attracts users seeking an easy, secure, and rapid money transfer solution. Enhances user trust through bank integration.	– Real-time P2P transactions. – User-friendly platform. – Seamless transactions via bank partnerships. – Prioritizes security and privacy. – Appeals to users seeking easy and secure money transfers. – Builds trust through bank integration.
Customer Segments	Zelle serves various customer segments, including: 1. Individual Consumers: Individuals who use P2P payments for personal transactions. 2. Small Businesses: Small business owners and freelancers for business-related payments. 3. Banks and Financial Institutions: Partner banks and financial institutions offering Zelle to their customers. Zelle caters to both individual consumers and businesses, and its partnerships with banks expand its reach.	Focuses on individual consumers and small businesses seeking efficient P2P payment solutions. Collaborates with banks and financial institutions to reach a broader audience. Customizes features to meet the needs of different customer segments. Enhances accessibility and adoption through partnerships.	– Serving individual consumers and small businesses. – Collaborating with banks and financial institutions. – Customizing features for various customer needs. – Expanding reach and accessibility through partnerships.
Distribution Strategy	Zelle’s distribution strategy relies on partnerships with banks and financial institutions. Users can access Zelle through their participating bank’s mobile app or website. This strategy leverages the existing customer base and infrastructure of these institutions. Zelle also offers a standalone mobile app for users who do not have access through their bank.	Utilizes partnerships with banks and financial institutions to reach a wide audience. Provides users with access to Zelle through their trusted banking channels. Offers a standalone mobile app to cater to users without bank integration. Prioritizes ease of access and convenience for users. Leverages existing banking relationships and infrastructure.	– Partnerships with banks and financial institutions for access. – Integration within trusted banking channels. – Standalone mobile app for broader user reach. – Focus on ease of access and convenience. – Leveraging existing banking relationships and infrastructure.
Revenue Streams	Zelle generates revenue primarily through partnerships with participating banks. Its primary revenue stream includes transaction fees charged to banks for facilitating P2P transfers through the Zelle network. Banks may choose to pass these fees on to customers or offer Zelle as a value-added service. Zelle may also generate income through data analytics and insights derived from its transactions.	Relies on transaction fees charged to participating banks for facilitating P2P transfers. May indirectly generate income through fees passed on to customers by banks. Potential revenue stream from data analytics and insights. Focuses on providing value to partner banks and financial institutions.	– Revenue from transaction fees charged to banks. – Potential income from fees passed on to customers by banks. – Possibility of generating revenue from data analytics and insights. – Prioritizes providing value to partner banks and financial institutions.
Marketing Strategy	Zelle’s marketing strategy focuses on brand recognition through its partner banks and financial institutions. It promotes Zelle as a seamless and secure P2P payment solution through co-branded marketing campaigns and materials. Additionally, Zelle collaborates with its partner banks to educate customers about the platform’s features and benefits. The platform’s marketing efforts emphasize convenience and real-time transactions.	Relies on partner banks and financial institutions for co-branded marketing campaigns. Collaborates with partners to educate customers about Zelle’s features and advantages. Emphasizes convenience and real-time transactions in marketing messages. Prioritizes aligning marketing efforts with partner institutions.	– Co-branded marketing campaigns with partner banks. – Collaboration with partners for customer education. – Emphasis on convenience and real-time transactions in marketing. – Alignment of marketing efforts with partner institutions.
Organization Structure	Zelle operates as a financial technology company with a focus on P2P payments. Its organizational structure includes teams dedicated to technology development, partnerships, customer support, and security. Technology teams work on platform enhancements and security measures. Partnership teams collaborate with banks and financial institutions. Customer support ensures a positive user experience. Security teams focus on safeguarding financial data.	Employs specialized teams for technology development, partnerships, customer support, and security. Prioritizes platform enhancements and security measures. Collaborates closely with banks and financial institutions to expand the user base. Ensures a positive user experience through robust customer support. Upholds the security and privacy of financial data.	– Specialized teams for technology development and security. – Collaboration with banks and financial institutions for growth. – Robust customer support for a positive user experience. – Emphasis on security and privacy of financial data.
Competitive Advantage	Zelle’s competitive advantage lies in its real-time, bank-integrated P2P payment platform, simplicity, and security. Real-Time Transactions: Offers instant money transfers, setting it apart from slower alternatives. Bank Integration: Provides seamless transactions through trusted bank channels. Simplicity: Offers an intuitive and user-friendly platform for hassle-free payments. Security: Prioritizes the safety and security of financial data, building trust with users. Zelle stands out as a convenient, secure, and real-time P2P payment solution.	Derives a competitive advantage from: – Real-time P2P transactions for instant transfers. – Integration with trusted banks for seamless transactions. – User-friendly and intuitive platform for ease of use. – Prioritizing security and privacy to build user trust. Stands out as a convenient, secure, and real-time P2P payment solution.	– Real-time P2P transactions for instant transfers. – Integration with trusted banks for seamless transactions. – User-friendly and intuitive platform for ease of use. – Prioritizing security and privacy to build user trust. – Stands out as a convenient, secure, and real-time P2P payment solution.

Table of Contents

Zelle Origin Story

Zelle is a peer-to-peer (P2P) payment network. It allows users to send money quickly and easily to their friends and family from a mobile device.

The platform started life as clearXchange in 2011, a P2P, B2B, and G2C payment service owned by Bank of America, Wells Fargo, and JPMorgan Chase.

The platform was then sold to fintech company Early Warning Services (EWS) in 2016, owned by several American financial institutions.

After the sale, clearXchange was rebranded to Zelle, and more banking partners were added to the network to make it more consumer-friendly.

The standalone app was integrated with almost 1,200 banks and credit unions comprised of Zelle’s owners and other major players such as Capital One, Morgan Stanley, and TD Bank.

Zelle is launched

Zelle’s instant payment service and mobile app was launched in June 2017 and accompanied by an announcement that clearXchange P2P services would be suspended by the end of the year.

While some governmental services would remain on the old platform, clearXchange users were encouraged to migrate to Zelle.

Rather than existing as a standalone app like competitor Venmo, Zelle was initially available within the mobile banking interfaces of participating institutions.

The app moves money from one bank account to another in a matter of minutes, with only the recipient’s email address and phone number required.

This made Zelle a more efficient option than a traditional bank transfer which can take several days and requires users to input bank account details.

For this reason, Zelle’s creators intended the service to be for quick, personal payments such as splitting the cost of a restaurant meal or collecting rent from roommates.

Like its predecessor in clearXchange, users are identified on the Zelle platform by a unique association between their bank account and phone number or email address.

Since these details are easier to remember than bank account numbers, funds will likely be sent to the intended recipient.

Growth and expansion

In February 2022, Zelle announced that its users had sent 1.8 billion payments worth around $490 billion in the previous calendar year.

According to EWS, this represented a 49% increase in the number of payments from 2020.

Much of the increase was attributed to businesses such as property managers, health and beauty providers, and contractors, whose usage increased by 162% over the same period.

Universities, non-profits, and some Fortune 500 companies sent payments over Zelle as an alternative to writing checks.

While it was acknowledged that the market had seen tremendous growth because of COVID-19, the pace of Zelle’s growth had enabled it to become the largest P2P payment network in the USA by total payments value sent.

The platform’s dominance is more than twice the size of the nearest standalone competitor.

This growth has also been facilitated via several company initiatives:

Consumer education around the security risks associated with digital transactions.
Collaboration with the non-profit Cybercrime Support Network to educate small businesses on common instances of financial fraud.
Investment in tools to help consumers avoid being scammed, and
In-app notifications remind users to stop and re-confirm the recipient’s details before hitting the send button.

Zelle has moved almost $1.5 trillion across its network since 2017, with more than 99.99% of those non-fraudulent.

Nearly 1,700 banks, credit unions, and minority deposit institutions (MDIs) now offer Zelle services within their respective apps.

Zelle revenue generation

Zelle is not a fee-based platform, so it does not generate revenue directly. It was created to save banks money.

Competitor P2P offerings such as PayPal, Venmo, and Square charge banks a fee for every transaction, so keeping these transactions in-house reduces costs.

This also allows the banking institutions to capitalize on a general shift toward a cashless society and avoid maintaining ATMs and branch offices.

Importantly, the app also generates indirect revenue for the consortium of banks that collectively have access to 100 million users in the United States.

This encompasses a host of the add-on and complementary services such as credit cards, mortgages, loans, and insurance.

Generation X and Baby Boomer users have also become a significant growth area for Zelle, many of whom were previously unfamiliar with the P2P concept.

After just two years, the app has become the largest P2P service in the U.S, with users completing around 743 million transactions worth $187 billion.

Although not explicitly stated, Zelle owner Early Warning Services LLC likely receives a payment from participating banks to maintain the integrity of the Zelle network.

B2C and other potential revenue generation models

In 2018, Zelle launched a feature enabling users to pay businesses for goods and services.

For the consumer, Zelle offers this service free of charge. But the merchant must pay a 1% fee to Visa or Mastercard, who then share the resultant revenue with the card issuing bank.

Looking forward, it would not be unreasonable to suggest that other financial products be recommended within the Zelle app.

This would allow partnering institutions to generate revenue through affiliate commissions and referrals.

Zelle vs. Venmo

who-owns-venmo — PayPal owns Venmo. Indeed, since 2002, PayPal has acquired several brands. In 2013, as PayPal bought Braintree indirectly, it also bought Venmo. Braintree acquired Venmo in 2012 for $26.2 million. Therefore, by 2013, Venmo entered into the PayPal family of brands comprising payment solutions like Braintree, Venmo, Xoom, and iZettle products.

Venmo is another P2P platform that makes sending and receiving money easier for consumers.

While Zelle and Venmo have more or less the same functionality, there are a few key differences.

Zelle enables users to transfer funds between the accounts of participating banks for free.

Funds used in these transfers do not reside in a holding account.

Instead, they are withdrawn from (or deposited into) the bank account of a sender or receiver.

Venmo, on the other hand, more closely resembles a digital wallet. In other words, funds are held within Venmo with a balance that can be spent, sent to others, or reloaded.

Transfers are normally completed in 1-3 business days, but there is a 1.5% fee for those who desire instant transfers.

Note also that Venmo offers a branded debit and credit card that can be used to purchase products and services from approved merchants.

With the above in mind, let’s look at other comparisons between the two platforms.

Fees

As noted earlier, Zelle is free to use for funds transferred between a linked bank or credit union account.

Venmo is more expensive to use and charges more fees, mostly because it offers more features.

For example, there is a 3% fee for credit card transactions up to a total value of $15. There is also a $2.50 fee for out-of-network ATM withdrawals.

Security

Both platforms have built-in security features that make them relatively safe to use.

Both monitor transactions for instances of fraud, with Venmo using data encryption to protect sensitive information.

Venmo also offers consumers the ability to add a PIN for multifactor authentication.

Availability

At the time of writing, Zelle and Venmo are only available for residents of the United States. This means that both are unable to send or receive money internationally.

However, it should be noted that there are various workarounds for users who like to travel, such as using a VPN.

Speed and ease of use

Zelle offers free instant delivery of funds, though many users will find that their particular bank restricts the amount they can transfer.

In many cases, transfers are capped at $500.

In scenarios where transfer limits are not in place, Zelle users may experience delays as the platform works to ensure the transaction is not fraudulent.

Others have also noted that in the case of money that is sent to the wrong account, Zelle cannot reverse the transaction.

Venmo, as we noted earlier, charges a fee for instant money transfers.

Credit cards give users more flexibility to make payments if they are willing to pay a premium for the privilege.

Since the funds in a Venmo account must be sent to a bank account to make purchases, one could argue that the company’s app is slightly less user-friendly than the Venmo app.

Key takeaways

Zelle is a P2P network allowing users to transfer money to their friends and family seamlessly. It was created by a consortium of 30 North American banking institutions.
Zelle is a free platform that does not generate revenue directly. However, the app was likely developed to maintain market share in the P2P industry and reduce third-party fees from competitors. There is also scope to suggest that Zelle causes increased consumer uptake of add-on financial services.
In the B2C space, Zelle shares a 1% merchant fee with Visa and Mastercard. As the service becomes more mainstream, affiliated financial products may be recommended in the app itself.