Zelle's volume surges, but there's a catch

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The bank-led person-to-person payment network Zelle saw its strongest quarterly growth during the fourth quarter of 2018, as payment volume rose nearly 60 percent to $119 billion for the year, helped by an increase in smaller transactions, suggesting more everyday use.

But Zelle’s traffic continues to be lopsided. Only 60 institutions currently are live with Zelle, and large banks such as Bank of America are seemingly driving the lion’s share of its volume.

Earlier this month BofA said it tallied 51.6 million Zelle transactions during the fourth quarter, reaching a total of $14 billion. Zelle reported 135 million transactions for the same quarter.

Editor's note: Zelle and Bank of America have since clarified that the number of Zelle transactions the bank reports includes both BofA-originated transactions and payments sent to BofA from other banks. Bank of America has declined to say what portion of that volume comes from its own customers. So it is unclear just how much the bank's volume contributes to Zelle's total.

Total Zelle transactions reached 433 million last year, up 75 percent over 247 million transactions in 2017, Zelle's parent company Early Warning Services LLC said in a Thursday press release.

Zelle is working to expand its network, Lou Anne Alexander, Early Warning’s group president of payments, said in an interview. One hundred more financial institutions signed on to Zelle during the fourth quarter, bringing to 229 the number that have committed to adding the service, and the pace of implementations is slowly increasing, Alexander said.

“We’re seeing some improvements in the onboarding process enabling acceleration of the rollout,” she said, noting that Fiserv, Fidelity National Information Services (FIS), Jack Henry & Associates and CO-OP Financial Services continue to be core partners for financial institution integrations.

Only one bank in a transaction needs to be on the Zelle network; customers of non-Zelle banks can access it through the stand-alone Zelle app. In all, customers of 5,100 financial institutions are using the Zelle network, Early Warning said.

Some credit unions are still skeptical about whether Zelle will be worth the trouble of integration. Holdouts cite the need to balance Zelle against other technology upgrades including mobile banking initiatives and budget considerations, Alexander said.

“We continue to talk with credit unions, and most want Zelle; it’s just a matter of when,” she said.

Fraud within the Zelle network remains under control, according to Alexander.

“Losses were very low for the fourth-quarter holiday season, and while we’re never comfortable with any fraud, it comes in waves and we put appropriate controls in place,” she said.

The average Zelle transaction size was $258 during the fourth quarter, versus about $400 when Zelle launched in the fall of 2017. “The decrease in average transaction sizes tells us people are using Zelle for more types of payments throughout the month than just occasional expenditures like sharing rent or utility payments,” Alexander said.

Baby boomers are one of the fastest-growing customer segments, Early Warning’s research indicates.

P2P also is stealing market share from gift cards and checks sent during the holidays. Zelle saw its highest volume ever at the end of November heading into the holiday season, with volume surges at the beginning and end of each month, Alexander said.

“Gifting is one of our largest categories and still growing,” she said.

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Zelle P-to-P payments Early Warning Bank of America