Zelle is among the top peer-to-peer (P2P) payment networks that allow users to transfer money to their families and friends. The speed and convenience it offers help users simplify transactions and have better control over their finances.
More than 65 million people in the United States use Zelle to send or receive money directly in their bank accounts. The platform is completely free to use — there is no subscription fee, monthly charges, or transaction fee involved for users.
Then how does it make money?
Short Answer: Unlike most other payment apps, Zelle makes no money. The company doesn’t have any independent revenue stream as of today, and it intends to keep the platform free of cost for the foreseeable future.
Instead, over 1800 participating banks in the Zella network generate revenue whenever a user pays a merchant for goods and services.
Below, we have explained how Zelle works, how it makes money for its associated banks, and who are its direct and indirect competitors in the United States. But let’s start with the basic question.
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What is Zelle?
Zelle is a popular digital payment network that allows you to transfer funds to family, friends, and businesses who are enrolled in Zelle. Money moves quickly — directly from one bank account to another.
It is run by a private financial services company, Early Warning Services LLC. This company is owned by several large banks in the United States, including JPMorgan Chase, Bank of America, Wells Fargo, Capital One, US Bank, PNC Bank, and Truist Financial.
Launched in mid-2017, Zelle has witnessed impressive growth year over year. Its users transferred $187 billion in 2019, $307 billion in 2020, $490 billion in 2021, and $629 billion in 2022.
More specifically, in 2022, consumers and businesses made 2.3 billion transactions having a total value of $629 billion. While the number of transactions increased by 26% year-over-year, the total value of transactions increased by 28% year-over-year.
Today, more than 1,800 banks are connected to the Zelle payment network. This means over 90% of the United States population could connect to Zelle through their banking app and transfer money seamlessly.
How Does It Work? The Business Model
With Zelle, you can transfer money directly to any US bank account within a minute. You can do this in three easy steps.
Step 1: Visit enroll.zellepay.com or download the Zelle app on your mobile and sign up.
Step 2: Zelle requires your email address or mobile number to get you enrolled. The email or phone number you enter must be linked to your bank account.
Step 3: Once you are enrolled, you can pay your family, friends, or anyone you trust straight from the app. Just enter the recipient’s email or mobile number and the amount you want to transfer, and the money will go directly into the recipient’s bank account (assuming the recipient is already enrolled with Zelle). If the recipient isn’t enrolled yet, he will receive a message explaining s how to receive funds quickly.
In the same way, you can receive funds from other Zelle users. When someone sends you money, the app shows you a payment notification letting you know who sent the money and how much.
Unlike other payment apps, Zelle directly integrates with banking institutions and processes transactions almost instantly. The only drawback is that you can’t transfer money outside the United States or to someone who hasn’t set up a Zelle account yet.
How does Zelle make money?
As we have mentioned, Zelle is completely free to use. It doesn’t charge its users to send or receive money. And the company aims to provide this service for free for the foreseeable future.
But then, how does it make money? That’s the interesting part; it doesn’t.
Zelle has no independent revenue stream as of today. Whenever users make a business transaction, participating banks on the platform earn revenue.
In 2018, Zelle added a new feature allowing users to pay merchants for goods and services. For every such business transaction, merchants pay up to a 1% processing fee to either Visa or Mastercard. A portion of that fee is then shared with the bank that has issued the card.
Zelle just facilitates the payment without charging anything from banks. Banks, on the other hand, can charge a fee for Zelle transfers involving their accounts, but they usually choose not to do so (to remain competitive in the market).
With the rise of P2P payment platforms, banks strive to retain customers and attract new ones by offering convenient and cost-effective services (such as free Zelle transfers) to stay competitive with other financial institutions and non-banking payment service providers.
So, right now, Zelle does not have any income stream. But in the near future, it may add new features to monetize its services.
Possible ways to generate revenue in the future
Financial institution partnerships: While Zelle already partners with many banks in the United States, it may extend its range to include more banks and credit unions on the platform. The company can charge small fees or commissions through contractual agreements with these financial institutions.
Transaction fees: Zelle may charge merchants for certain types of business transactions, such as high-value transactions or transactions to banks that are not enrolled with Zella.
Zelle-branded debit/credit card: Like Venmo, Zella may introduce a debit card system and charge ATM withdrawal fees or earn commission on promoted products.
Data analytics and research: Zelle may utilize billions of transactional data to provide detailed insights to financial institutions for a fee. This data can help these institutions identify user behavior, transaction patterns, and other trends that might affect their decision-making processes.
It is important to note that Early Warning Services might already be receiving money from its owner to create and maintain the Zelle network. The payment structure can vary based on the agreement between Early Warning Services and financial institutions. It’s just an educated guess; no such information is available to the public.
History of Zelle
Zelle was initially launched as the clearXchange service in 2011 by a consortium of three of the largest banking institutions in the United States – Wells Fargo, JP Morgan Chase, and Bank of America. The goal was to tackle the growing competition from online payment services such as PayPal and Square.
In 2015, Capital One and US Bank (the largest subsidiary of US Bancorp) joined the consortium as the owner-member of clearXchange service, along with a number of credit unions and smaller banks as partners. In the same year, the platform introduced a real-time payment system that allows users to send money instantly across all member banks. However, during its early days, the service was slow and sometimes took up to five days to process transactions.
The clearXchange platform was kept without any fees and charges to gain a competitive advantage over other P2P payment services, notably Popmoney (owned by Fiserv) and PayPal.
Though clearXchange used existing bank accounts to connect customers with its network and relieve them from managing a separate account, most of its features were confusing. Plus, several accessibility issues made the service reasonably difficult to use.
In 2016, clearXchange was sold to Early Warning LLC, a fintech company involved in payment risk management and fraud protection. The company itself is owned by several US banking institutions, including Truist Financial, Bank of America, Capital One, JP Morgan Chase, PNC Bank, Wells Fargo, and US Bank.
In September 2017, Early Warning launched a new and much-improved payment service named Zelle to replace clearXchange. However, the latter was not completely shut down and is still available to users receiving payments from companies where Zelle is unavailable.
Under the new management, the service was introduced to more than two dozen banks and advertised and promoted extensively. Moreover, Zelle’s in-app features were standardized across the participating banks to increase its user-friendliness.
These efforts made Zelle one of the fastest-growing and most successful P2P payment networks in the world.
Zelle has witnessed rapid growth since its inception in 2017. Its user base, transaction volumes, and transaction values have increased significantly year over year.
2017: Zelle quickly gained traction because of its simple user interface and integration with large banks’ mobile applications. In the first year only, Zelle processed more than 247 million transactions valuing $75 billion.
2018: The company expanded its network of partner financial institutions, reaching 5,500+ banks and credit unions. This year, it processed about 433 million transactions having a total value of $119 billion.
2019: As more users signed up and more banks joined the network, Zelle enhanced its features and functionalities. The number of transactions grew to 703 million, and the total transaction value reached $187 billion by the end of the year.
2020: Zelle further expanded its user base and partner financial institutions. It reported over 1.2 billion transactions with a total value of $307 billion.
2021: Zelle surpassed 54 million users, showing how consumers and businesses trust the app to send and receive money. The money received by small businesses grew 162% over the previous year’s totals. Several universities, nonprofits, and Fortune 500 also turned to Zelle when disbursing funds to the public.
2022: The platform processed more than 2.3 billion transactions with a total value of a whopping $629 billion. Small businesses, such as consultants, landscapers, and house cleaners, received over 150 million payments totaling $72 billion, up 77% and 84%, respectively, from the previous year.
The company plans to expand payment capabilities so more consumers and larger entities can connect to the Zelle network. It also plans to improve fraud detection and prevention techniques, which will help solidify user trust and boost volume.
Did you know?
Zelle is estimated to have more than 82.4 million users by the end of 2026.
In 2022, the number of transactions through Zelle users increased by 26 year-over-year, while total transaction value increased by 28% year-over-year.
The company also focuses on security and fraud prevention — it uses several measures like encryption, risk monitoring, and multi-factor authentication to protect users’ transactions and personal data. More than 99.9% of payments on the Zelle network have been sent without any report of scams or fraud, and the percentage continues to improve.
Concerns About Zelle
Zelle is an easy way to transfer money to your family and friends accounts regardless of the bank they use. However, it is crucial that you only send money to known and trusted people.
One of the major criticism Zelle has received since its rise to popularity is its lack of fraud protection and other security-related measures that prevent users from getting scammed or defrauded. Unlike widespread expectations, the Zelle network doesn’t yet offer security features found in its competitors, such as PayPal.
For one thing, once you authorize a payment on Zelle after providing the recipient’s US mobile number and email address, the money transfer cannot be canceled by any means (unless the recipient has not yet enrolled in the network). Moreover, the participating banks and the platform itself are not legally accountable for any fund transfer by the user.
The most common type of scam that takes place on Zelle is when an anonymous seller asks the buyer to pay for a product through the Zelle network instead of PayPal or other more secure payment methods. Since the network is supported by their bank or credit union, users generally feel secure and assume that the institution will intervene if anything goes wrong.
However, that’s not the case. The seller, who is actually a scammer, will usually close his bank account after receiving the money. Needless to say, the promised product will never arrive.
As a fraud victim, the customer can complain to the bank, but they will just say there is nothing they can do since the user authorized the Zelle fund transfer. For this reason, the platform urges users to consider other payment options if they are unsure about the recipient.
In more severe cases, scammers can drain funds from personal savings and checking accounts through Zelle. After getting lured into providing just a few details, including a bank verification code (via phone calls), the scammers create a Zelle account to quickly transfer money from that account to their desired accounts.
Direct and Indirect Competitors
As a digital payment platform, Zelle has numerous competitors in the market. The major ones include:
Owned by PayPal, Venmo makes it easy to send and receive money. It is aimed at people who which to split bills for rent, movies, parties, or event tickets.
It is more like a social network of digital payment apps — you can see what your friends are up to, discover new favorites, and share fresh finds right in the app.
As of today, Venmo has more than 83 million active users. About 35% of them are aged between 18 and 29, 47% are immigrants, and 92% have purchased something in the last six months.
2. Apple Pay
With Apple Pay, users can make contactless payments through compatible devices such as Apple Watches, iPhones, iPads, and Macs. It is built into devices — there is no need to download any app or complete any complicated process.
Apple Pay uses a unique transaction code and device-specific number to complete the transaction. When you make a purchase, the transaction is authorized via facial recognition (Face ID) or fingerprint recognition (Touch ID) for added security. It doesn’t store your card information on the device or on Apple servers. Also, your card information is never shared with merchants.
Apple Pay works at all stores that take contactless payments, from taxis and subway stations to grocery stores and vending machines. It is currently accepted at over 87% of retailers in the United States.
3. Google Pay
Google Pay allows you to send and receive money from family and friends, and pay for purchases in stores and online. You can securely link your bank accounts, debit cards, and credit cards to your Google account and use it as a payment method for almost all transactions.
The app also lets you view recent purchases and upcoming payments to analyze your spending habits. View weekly summaries to know exactly what’s coming in and what’s going out.
Google Pay has about 170 million users across 40+ countries and is incredibly popular in India. Nearly 30% of its users are Millennials, 15% are Generation X, and 8% are Baby Boomers. However, the awareness of the app is over 90% among all age groups.
Stripe is designed for businesses to accept payments over the Internet. It offers various tools and APIs that help businesses of all sizes manage and process payments securely and efficiently.
More specifically, Stripe provides the infrastructure needed to process online payments, including digital wallets, debit cards, and credit cards. Its payment processing capabilities can be easily integrated into mobile applications, websites, and various digital platforms, enabling customers to make payments for products and services.
With operations in over 45 countries and support for multiple currencies, Stripe is one of the largest global payment processing solutions for businesses across the world. In 2022, it processed $817 billion worth of transactions, up 26% from 2021.
More to Know
Is Zelle safe?
Yes, the platform is designed to be secure. It uses multiple layers of authentication and encryption to protect users’ data and secure transactions. It follows the same security measures implemented by large financial institutions, including bank-level security protocols, fraud monitoring, and risk management practices.
Is There a Limit on Zelle Transfers?
Depending on the bank or credit union, there is a limit on how much money a user can transfer over the Zelle network. Most large banks have daily, weekly, and monthly limits for such transfers.
For instance, individual accounts with Bank of America have $3500 daily, $10,000 weekly, and a $20,000 limit over the period of 30 days. Small business accounts, on the other hand, have remarkably higher sending limits. Business checking accounts with Chase Bank have a single transaction limit of up to $5,000 (daily limit) and $40,000 a month. Zelle doesn’t limit how much funds you can accept in a given time.
On a side note, if your bank doesn’t support Zelle services, you can only send $500 per week.
Can you send money internationally through this platform?
No. As of now, Zelle doesn’t support international money transfers. All transactions are processed in US dollars and are limited to participating US financial institutions within the Zelle network.
Advantages and disadvantages of using Zelle
|Offers a convenient way to transfer funds||Available for users in the US only|
|Transactions are processed almost instantly||Has transaction limits set by individual banks|
|Integrates with over 1,800 banks in the US||Transactions are irreversible, so verify carefully before sending the money|
|Absolutely free for users – no transaction fee or monthly fee is involved||Limited customer support:|
|Secure and trusted platform|
Venmo vs. Zelle – Which is Better?
According to a forecast by market research firm eMarketer, the US-based mobile P2P platforms will handle more than $1 trillion in transactions by 2023. This growth is likely to be driven by three platforms – Venmo, Zelle, and Square’s Cash App.
Venmo is undoubtedly the more popular P2P app out of the three, with a larger user base and overall public awareness. But Zelle has its own merits that make it increasingly popular.
While Venmo is more geared towards consumer-to-business transactions and is extensively used by the younger population for its social tools, more and more customers are using Zelle for paying bills and transferring large amounts of funds. It is mostly due to the platform’s ease of use and a rapidly expanding ecosystem of banks on the Zelle network.
Though Venmo is mostly free to use, it charges a certain fee for instantly transferring money from the Venmo account to a bank. Zelle, on the other hand, doesn’t charge any fee.
Moreover, while both platforms have sending limits in place for account holders, the limits on Zelle vary greatly depending on the partner bank. The sending limit on verified Venmo accounts is capped at $4,999 weekly (on person-to-person payments).
To conclude, using Venmo or Zelle for mobile payments depends on your specific needs. If you want to split bills at a restaurant or bar effortlessly, then Venmo is what you need. But if you’re looking for a platform to pay bills and transfer money directly to bank accounts instantly, then Zelle is for you.
The market size of P2P payment platforms
According to the Precedence Research report, the global P2P payment market size will reach $9.87 trillion by 2030, growing at a CAGR of 20.16% from 2023 to 2030.
The key factors behind this phenomenal growth include the increasing adoption of online banking and mobile banking, as well as the expansion of the e-commerce sector in developing countries like India and China. Furthermore, digitalization in various sectors and technological breakthroughs will make P2P platforms more reliable and easy to use.