Zelle no! Credit unions balk at joining bank-run P2P network

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Some credit unions won't join the bank-operated Zelle P2P network — even as their members demand the service.

Zelle doesn't require a bank or credit union to participate in its network to allow it to receive funds; so even Zelle holdouts will see some activity on their accounts. This allows credit unions to compare members' demand to usage, and to determine whether signing up with Zelle is worth the trade-offs.

"Zelle is a top five bank-owned network, and all the fees go to them," said Jay Tkachuk, vice president of digital services at Security Service Federal Credit Union. "We as a business get nothing except liability and security expense."
Tkachuk and other credit union executives spoke at SourceMedia's annual PayThink conference, taking place this week in Austin. Zelle, formerly clearXchange, is owned by the bank-operated Early Warning.

Security Service FCU does not offer Zelle or another P2P option, and it was a decision the organization debated for more than a year, according to Tkachuk. Members have requested Zelle, but the request is far down the list; it doesn't make the top 10, he said.

Randolph-Brooks FCU is in a similar situation, and is monitoring its members' usage of Zelle and Venmo to determine whether it should join the Zelle network.

"We had 50-something Zelle transactions last month," despite not participating in Zelle, said Charlotte Norton, the senior vice president of central operations for Randolph-Brooks. "We watch that constantly and we're trying to understand what our members are doing."

Randolph-Brooks allows its members to transfer funds to one another if they know the other member's account number. Norton admits that's clunkier than asking for the recipient's email address or phone number, as Zelle and Venmo do, but nevertheless a quarter of a million transactions happen this way each month.

Norton recalled talking to a banker who said most of its Zelle transactions showed the same behavior — the payments went from one of the bank's customers to another. If this is a typical use case, Norton said, "I don't want those to go to Zelle because I'll have to pay for them."

In an email, Early Warning said it continues to invest in making the Zelle experience better with new use cases and features that address evolving payment needs. "As we strive to make Zelle ubiquitous in the market, we are working closely with resellers to add capabilities that make it easy and fast for credit unions to participate." said Ian Macallister, head of sales and customer success at Early Warning Services.

And not all credit unions are as skeptical of Zelle.

Michelle Lemieux, senior product manager at CO-OP Financial Services, an early adopter of Zelle for credit union clients, told Credit Union Journal in a recent article, “There is consistent consumer awareness and excitement from our credit unions to offer Zelle."

CO-OP is working with many clients and mobile banking providers to integrate Zelle, according to Lemieux, who declined to share user statistics for that article.

During the discussion at PayThink, Christopher Danvers, vice president of payments and digital services for American Airlines Federal Credit Union, compared the Zelle question to credit unions' earlier decision of whether to support Apple Pay.

"When Apple Pay was announced … we had a lot more requests," Danvers said. "That drove our participation in the service but usage has been … pretty minimal."

Danvers wonders if Zelle and other P2P services will follow the same pattern. Someday Zelle could become table stakes, but it hasn't reached that point yet, he said.

As with Apple Pay, credit unions worry about signing up for another brand's service that stands between them and their members. Danvers disagrees with that philosophy because the credit union would still be the funding mechanism for any payments that are made through Zelle, Venmo or other P2P apps.

"You can't have money coming out of an account unless you've got money coming in," he said. "It's critically important that credit unions focus on that direct deposit aspect of their checking and deposit relationships."

Tkachuk agreed, adding that this relationship is built on trust and security. Whether the third party is Zelle, Venmo, Apple Pay or Amazon, they all come to the deposit account as a starting point.

"We have to find a way to defend our turf," Tkachuk said. "If we find a way to do that in perpetuity — being the digital identity hub with the funds attached to it — then yes, absolutely we'll remain relevant forever … but if we lose the cybersecurity battle, then we lose all of it."

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