This morning the bank owned P-to-P network, Zelle, is formally going live, enabling direct transfer of funds across thirty U.S. financial institutions over the course of the next twelve months. There are a lot of questions around whether it can compete with the current kings of P-to-P — Venmo and its parent company PayPal — but Zelle may not be aiming to take them head-on just yet.

Venmo is known to be most popular among millennials, who feel at home with its social media-like interface. But banks have a different and potentially larger addressable market, starting with the over 86 million U.S. mobile banking customers.

And that is Zelle's sweet spot. The only question is whether its new brand and updated technology can win its backers an audience that they have been trying to reach for years.

Chart: P-to-P's untapped potential

A digital option for the technophobic

One of the greatest challenges in all forms of digital payments is getting skeptical end users to try new providers.

According to a 2016 Federal Reserve survey, 43% of mobile phone owners considered mobile banking to be very or somewhat safe, but a nearly equal 42% considered it to be very or somewhat unsafe. What may be more concerning is that these numbers had barely changed from 2015 and 2014, despite mobile banking being one of the most mainstream and oldest mobile transaction services.

For the newest digital P-to-P services, there is an even greater challenge in encouraging widespread adoption. Data from 451 Research shows a stark difference in adoption rates of mobile P-to-P based on age. Thirty-nine percent of smartphone owners aged 18-24 perform P-to-P transactions at least once a month, with this population dropping steadily per decade to just 24% of 35-44 year olds and into single digits in those 55 or older.

However, the survey also highlights that there is a willingness to try P-to-P payments by those who have not done so, regardless of age. The key to adoption will be nailing the user experience and cultivating trust. Zelle’s intention is to build on the existing user base of mobile banking apps where there is a more established existing base of users across a broad demographic range.

So what's new?

Zelle may be calling today its debut, but the P-to-P network first launched back in 2011 under the name clearXchange. At the time it seemed like a potentially strong offering, with the backing of Bank of America, Wells Fargo and JPMorgan Chase; over time, however, the network's problems became obvious.

For one, it seemed like even the banks were slow to use their own network. JPMorgan Chase, a founding member, didn't go live on clearXchange until years later, lagging late additions like FirstBank, which joined the collective and went live in late 2014. By the end of 2015, the banks decided to merge clearXchange with another multi-bank venture, Early Warning, and began the process of sunsetting the clearXchange brand.

But this confusion didn't just take place behind the scenes. It was never clear to consumers that P-to-P payments initiated in Bank of America's app could reach friends who bank with Wells Fargo. Each bank had its own brand for its P-to-P service, creating the misconception that their offerings were proprietary and closed-loop.

“It was recognized that there was a lack of a common moniker in the industry for consumers, a lack of common flows for how to implement the product or how to send money, and the lack of the ability for one consumer to tell another one who’s at a different bank how to enroll to get the money they just sent," said Lou Anne Alexander, group president of payments at Early Warning. "It became very frustrating, even for champions of the product. That’s when we recognized the need for a common brand name for Zelle."

This branding is more than skin deep.

The Zelle user experience is designed to be consistent across different mobile banking platforms from different vendors. Interactions all flow through the same steps and have the same language.

“P-to-P is a shared experience between sender and recipient," said Brett Pitts, EVP and head of digital at Wells Fargo. "For the customers who are enthusiastically participating in your network, to continue to expand out and promote that, you need to make it easy for them to do it. The most effective way to be able to do that was to be a lot more consistent in terms of the branding and then within the experience so that the end user can cross pollinate and tutor each other on digital P-to-P.”

Taking on Venmo and PayPal

With the landscape already crowded for P-to-P, Zelle is by no means faced with a green-field opportunity. But it can learn from its rivals.

The current Zelle interface is nearly identical from bank to bank, and this is a deliberate decision on the part of Early Warning. It prohibits individual banks from changing any aspects of the user experience other than the colors and fonts, and even that was simply to align the Zelle process with the look and feel of each bank app in which it resides.

"Third party competitors out there, they have that consistency," said Ian Macallister, vice president of strategic partnerships at Early Warning, in a presentation at SourceMedia's Card Forum in May.

To do otherwise introduces friction that "kills the transaction," Macallister said. That inconsistent branding was "the biggest hurdle we had at clearXchange," he added.

It was impossible to expect widespread adoption when one bank called its version SurePay and another called it QuickPay, because consumers would have no idea that these bank-owned brands operated on the same platform, Macallister said. Not only would users have to guess that these systems were compatible, they would also have to locate them within the app, and each bank had its own approach to positioning the P-to-P service, he said.

By the end of 2017, Zelle will also have its own branded app for consumers who prefer that approach rather than going through a bank app.

However, Pitts considers the bank-backed network to be a key differentiator in making P-to-P widely accessible.

“There is a level of trust that exists with their bank, they are more willing to try new things with them. That’s the big opportunity," Pitts said. "Further, if something goes wrong for a larger dollar amount transaction, we’re going to be there to back them up.”

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Nick Holland

Nick Holland

Nick Holland is a Senior Analyst at PaymentsSource. He has previously held analyst roles at Javelin Strategy & Research, Yankee Group and Aite Group.