Zelle by Early Warning: Insights
Zelle is a person-to-person (P2P) payment service provider that delivers a fast, safe, and easy way to send money. Its parent company, Early Warning Services (EWS) is a fraud detection service provider that analyzes consumer banking behaviors for financial institutions, government entities, and payment companies. Insights into their business models, current user status, and the relationship between the two companies are as below.
- Zelle is a P2P payment service that offers a fast, safe, and easy way to send money to friends and family within minutes, using only an email address or US mobile number.
- The transaction is direct between bank accounts, performed through either the user’s banking app or the Zelle app, if their bank has yet to offer Zelle.
- Zelle is free to the user, but it charges the participating banks between $0.50 to $0.75 per transaction. Zelle lets banks set user fees, but none have announced plans to charge customers for bank-to-bank transfers.
- Banks are willing to subsidize the transaction costs for the users for various reasons, mainly due to competitive pressure from Venmo and Square Cash, which are both free. Banks believe that by providing satisfactory P2P payment services, users will keep their money in their bank accounts and will increase the likelihood of extended engagement with them.
- Zelle is widely used due to its ability to convert existing bank clients to Zelle clients. It has the unique advantage of working inside banking apps. 76% of Gen-X and 74% of Baby Boomers also said that the offer through existing financial institutions was the key reason that they would trial P2P payments.
- Gen-Xers and Baby Boomers make up half of Zelle’s new customer. A public report of Zelle emphasizes the higher dollar per transaction than Venmo. This is mainly driven by the Gen-Xers and Boomers. Boomers are making relatively the largest payments through Zelle compared to other platforms and age groups. Zelle sees educating consumers on the value of peer-to-peer payments as one of their challenges.
- Zelle’s other advantage is its speed; setting it up takes a few seconds. Money transferred through the network will be available to the recipient in real-time because the money moves directly from one bank account to another.
CURRENT USER STATUS
- Unlike other services, Zelle is backed by big banks. Eighteen banks in the United States, including most of the biggest players, are using Zelle, and 70 more are setting it up. Summed together, they represent about half of the checking accounts in the country.
- It is estimated that thousands of new users sign up every day. Most users are from existing bank clients. In Q1 2019, Zelle had 147 million transactions with a total worth of worth $39 billion.
- While offering a service similar to Venmo and Square, Zelle mentioned that their largest competition is still “checks and cash”. Consumers moved more than $172 billion in funds to other people through their banks in 2018. Compared to that, Zelle still has a relatively small market share.
EARLY WARNING SERVICES (EWS)
- Early Warning Services (EWS), is a fintech consortium jointly owned by seven of the US' largest banks. They have been providing network intelligence, such as consumer reports, to assist financial institutions in preventing fraud throughout the United States for almost three decades.
- While EWS did not have huge brand recognition in the public domain, it is well regarded in the financial services industry as a security provider.
- EWS provides specific services to serve financial institutions' identification, authentication, and payment needs. They find and report fraudulent activity associated with checking and savings accounts. Examples of such activities are bank fraud, forgery, counterfeit checks, check alteration, and check kiting.
- A typical record from EWS will include personal information, account information, such as checking and savings account history and activity, bank’s name(s), account number(s), opening and closing dates of account(s), balance and status information, transactions, and any inquiries made by entities wishing to see the consumer’s report.
- A “deposit score” is also provided to estimate the consumer’s risk level for opening new accounts. Having a negative item on your EWS record can make it more difficult to do business with some organizations.
CURRENT USER STATUS
- EWS’s network includes 2,500 financial institutions, government entities, and payment companies. Their partners include 45 of the top 50 financial institutions.
RELATIONSHIP AND HISTORY BETWEEN ZELLE AND EWS
- EWS is best known as the owner and operator of the Zelle Network.
- Zelle, formally clearXchange was a bank-owned venture launched in 2011 to streamline US P2P payments. The service is orientated to serve banks more than consumers, was fairly outdated, and its design and features varied at each bank.
- EWS acquired ClearXchange in 2015, with the intent to build a real-time platform that integrated its fraud prevention services, authentication capabilities, and bank network. The acquisition gathered enough influence and resources to build a platform that other banks couldn’t ignore.
- EWS introduced Zelle as that platform in 2017, a real-time platform that integrated the key services under a unified consumer brand. It was built atop clearXchange’s infrastructure, featured EWS services and drew on some of Venmo’s popular features. Today, clearXchange is migrating to become part of Zelle, claiming such a move will not only enable easy and safe payments but make them faster.
- EWS claims involvement in processing the $100+ million through Zelle each quarter.