Third-party person to person (P2P) applications have become popular with millions of users, especially those in the younger demographic. Cash and checks are essentially non-existent, and users prefer a digital-first method to make payments.
Among the many P2P options available to users, two stand out – Venmo and Zelle.
While they technically provide the same service – sending payments to anyone else in the world at no cost – Venmo and Zelle have important differences that are important to understand.
|Company||Tied to specific Financial Institution (FI)?||Fees||“Balance”?||Independent App?||Social Component?|
|Venmo||FI agnostic - anyone with a smartphone can download and use||Free. If using credit card, 3% fee applies||Yes, user carries balance in the Venmo application||Yes||Yes, user can view “feed” of friends’ venmo transactions and like or comment (similar to Facebook)|
|Zelle||Yes, currently live with 11 FIs, with ~25 more in the pipeline||Free||No, payments are directly deposited in specific bank account (there is no separate “P2P” balance)||Yes, also integrated into existing FI mobile application||No|
Venmo is the most popular P2P transfer application in the world. In Q2 2017, Venmo processed $8bn of transaction volume, representing 103% growth over the previous quarter . The application is extremely popular with millennials and “Venmo” is frequently used as a verb – “Just Venmo me” or “I’ll Venmo you later” have become second-nature to many people.
Venmo is a mobile-first application and charges no fees if a user is making payments using debit cards, prepaid cards or directly through their bank account. If using a credit card, Venmo charges a 3% transaction fee.
Venmo also acts as a virtual bank account – users hold a balance and often utilize Venmo as a virtual checking account. When a payment is received through Venmo, it is not immediately transferred to a user’s bank account but instead stored in their “Venmo Balance”. Users then have the option to keep that money in their Venmo balance or transfer it to their primary bank account. If they keep the money in Venmo, the next time a payment is made, it is taken from their balance. It is fairly common to see users hold a balance in Venmo, due to frequent use of the application.
Lastly, Venmo incorporates a social component in its product. As long as the user permits sharing, all friends of the payee and payer can see what the transaction description is. Similar to a Facebook feed, others can comment or “like” these transactions. Venmo has taken a very private experience – the exchange of money – and found success in making this shareable and engaging.
Naturally, given Venmo’s success, mega-banks have felt an insane amount of pressure to develop a competing product and ultimately settled on Zelle. As far as core functionality goes – the goal is still to provide a free and digital way to transfer money.
Zelle aims to capitalize of some of the weaknesses users may see with Venmo’s product: non-instant transfer to bank accounts, a separate application, and potentially weak security. Zelle’s partners include the largest banks and credit unions in the country, and the service is currently live with 11 financial institutions .
23 other financial institutions are expected to launch the platform over the next year. In addition, Zelle plans to work with payment processors to expand into the broader regional and community financial institution market.
Lastly, Zelle recently annouced the launch of its standalone mobile application - an even more direct way to attract current Venmo users.
- P2P transfer capability directly located within the financial institution’s mobile banking application as opposed to a separate application
- Same amount of security protection as all other bank transactions
- Payments appear within bank accounts immediately at no cost (as opposed to a few days)
- Slow development and release cycles – 30 of the largest financial institutions working together can result in slow product updates and integration hurdles. For example, currently PNCBank only offers Zelle to their Virtual Wallet account holders – not their entire customer base. Additionally, the timeline for Zelle’s release to other institutions is ambiguous. If these technological hurdles cannot be solved quickly, customers will lose interest.
- Adoption rate – given Venmo’s dominant and high-growth position in the P2P market, Zelle may have a tough time winning over existing Venmo users. P2P payment networks rely on “network effects”. In other words, the P2P product only becomes powerful if people adopt it and use it.
- In order to use Zelle similar to how users currently use Venmo, both parties need to have a bank account that integrates with the service. If Zelle’s rollout to other larger institutions, or regional and community institution is delayed, this could be problematic. Venmo, on the other hand, is financial institution agnostic.
- Regional and community financial institutions will no doubt begin fielding questions about Venmo and Zelle. Pushing your digital banking providers and payment processors to incorporate one of these services into your product suite is how you can win.
- Don’t be afraid to embrace these applications. Payments is a complicated and growing field – besides Venmo and Zelle, Facebook, Square, Google, and Snapchat have all either implemented payment capabilities or are exploring them. As a financial institution, viewing these as an extension of your banking experience (rather than a replacement) will only make your customer-relationship stickier.
- Don’t rely on core banking provided P2P solutions or other “off-the-shelf” solutions. They do not have the scale required to compete and are often antiquated technology solutions with weak user experiences. They potentially could do more harm than good.