Beyond Zelle: P-to-P venture a 'starting point' for future bank collaborations

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If the megabanks' Zelle person-to-person payment service takes off, it will serve as much as a blueprint for collaboration as it does for digital payments.

The speed and security of a product like Zelle brings the banking industry's main assets to the forefront: trusted brands, a vast knowledge of how payments rails should operate, and immense scale. But the biggest draw may be the act of uniting a group of rivals — JPMorgan Chase, Bank of America, Citigroup and Wells Fargo being the largest — behind this goal.

"P-to-P was a great starting point in which competitors can actually come together for a broader good," said Melissa Lowry, vice president and head of product and marketing for Early Warning, the bank venture that acquired the clearXchange P-to-P network technology and rebranded it as Zelle.

"As long as the right guard rails are in place, people understand their roles as to where they can compete and where they can collaborate. It is proof that it can be done," Lowry said.

But success is never guaranteed. The venture's next big test will be when banks advocate more strongly for the use of distributed ledger, or blockchain, technology. Blockchain gained attention as the underlying platform that enables bitcoin transactions, and many in the financial services world want to use blockchain to augment or replace older processes. But some fear that collaboration amongst banks in blockchain development won't come easy.

Just a few years ago, many in the banking industry looked upon anything related to bitcoin as something banks wanted no part of. And as with bitcoin itself, blockchain may have trouble living up to the hype.

"Blockchain is different because the banks still have to find a use case for that," said Larry Berlin, vice president with Chicago-based First Analysis Securities. "Zelle could provide a nice stepping stone to that, but I am not sure what the next low-hanging fruit might be. Most likely, it will be something else in the faster payments realm."

It was, after all, the Federal Reserve Banks' faster payments initiative that ultimately helped move same-day ACH initiatives to the forefront, as well as Zelle and other products pushing to become enablers of real-time payments.

"Banks have historically cooperated with each other at times, particularly in dealing with Visa and Mastercard," Berlin said. "Zelle could give them a roadmap for future cooperation, but it has to be for something that works."

The launch of Zelle "was actually pretty easy for the banks," Berlin added. "But you can get into all sorts of issues when you go to the next steps, and some of these other initiatives like blockchain can get more complex."

It all has to be technology in which the smaller banks can participate as well, Berlin said. Plus, the banks have to have a good reason to work together while also believing it won't violate some sort of antitrust rules, he added.

Early Warning has seen the interest in Zelle grow, simply by bringing more partners on board. When it rebranded, Zelle started with 19 financial institutions in place before adding technology providers Fiserv, Jack Henry and FIS and their clients into the mix.

That sort of collaboration gives 9,000 banks and credit unions the option to sign onto the network, allowing more banks to join in the coming weeks, Lowry said.

In the case of Zelle, the large financial institutions developed a network aligned around a common vision, Lowry added. "It is a great example of where we can improve and grow."

Zelle's earlier incarnation, clearXchange, enjoyed good consumer adoption despite limited awareness among consumers, Lowry added.

"It was an amazing mindset for these banks to have to be able to do that and all stand behind one brand," Lowry said. "It's one experience that everyone is using, and that helps getting people to talk about it to each other."

When Bank of America revealed last week that it was the first major financial institution to integrate the Zelle person-to-person payments functions into its mobile banking app, it signaled the true start of the Zelle's multi-phase rollout.

Bank of America and other early adopters can serve as a source of feedback as the Zelle platform spreads.

"If the service needs tweaks, we can do that," Lowry said. "So many are already experiencing the clearXchange network, so we want to do this as easy as possible for consumers."

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P-to-P payments Risk management Early Warning