How Does Zelle Make Money & Who Owns It?

Executive Summary:

Zelle is a peer-to-peer (P2P) payment network that enables users to send money to their friends, family, and anyone else that is part of the platform.

Zelle does not make any money right now. Instead, its participating banks generate revenue whenever a user pays a business in exchange for goods and services.

The Zelle network was launched in September 2017. It currently has 924 participating banks in its network. For the fiscal year 2020, it has facilitated over $307 billion in payments.

What Is Zelle And How Does It Work?

Zelle is a digital payments network that allows participating users to send money from their bank accounts to anyone who is a member of the platform.

The service is solely available to U.S. account holders whose banks are part of the Zelle network. The registration only takes a few minutes to complete.

Once registered, users can send money to their friends and family using the Zelle app. Alternatively, the Zelle network can be used within a partner bank’s app such as Well Fargo or Chase.

To transfer money, all a user needs to do is to enter the recipient’s email address and phone number. The funds are normally transferred within a matter of minutes.

The network is currently available to consumers only. Businesses, therefore, have to revert to other means of collecting payments.  

Zelle is powered by the Mastercard Send and Visa Direct payment rails, respectively. Modern-day banks almost always use either of the 2 as their payment processor, therefore allowing basically any bank to partake in the Zelle network.

What Banks Use Zelle?

Zelle currently works together with 924 financial institutions as of the time of writing. Most of its partner banks even have the payment platform integrated into their mobile apps.

As long as the user possesses a Mastercard or Visa debit or credit card, he or she can use the Zelle network to send money.

A Short History Of Zelle

Zelle, initially branded as clearXchange, was established in 2011. Bank of America, Wells Fargo, and JPMorgan Chase decided to form a consortium to tackle the growing competition they faced from other payment appes such as PayPal or Venmo.

In the initial days, clearXchange was still fairly clunky and slow. For instance, it took users sometimes up to 5 days to transfer money between accounts.

Furthermore, clearXchange was only available via the platform’s website or partner bank app, which made it harder for the service to find nationwide adoption. To add to that, only a few banks were participating in the network.

Lastly, features varied heavily across all the partner banks. This further complicated the user journey and made it tougher for people to get used to the service.

That all changed in 2016. The service, which was previously owned by  Bank of America, JPMorgan Chase, and Wells Fargo, was sold to Early Warning Services (which itself is owned by a consortium of banks).

Under Early Warning’s guidance, the speed of product development finally became on par with the ambitions of the owners. In September 2017, Zelle finally launched to the public (while clearXchange was shut down).

The service rolled out together with more than 30 U.S. banks. That was equal to almost 100 million account holders.

With some of the biggest U.S. banks as backers, Zelle quickly picked up steam. To introduce the app, the consortium spent up to $1 million per TV ad.

Furthermore, Zelle’s in-app experience was standardized across all participating banks, which made it easier for new users to pick up the service.

Especially Gen Xers and Baby Boomers proved to one of the major growth channels. Many of them were not accustomed to any of the newer banking services like Chime and remained with traditional banks. That allowed traditional banks to better target their existing customers, allowing them to introduce them to the world of P2P payments through Zelle.

These initiatives allowed Zelle to become America’s largest P2P payments service just 2 years after launch. In 2019 alone, Zelle’s users completed around 743 million transactions while processing $187 billion in payments.

The service even became critical for people’s survivability. For instance, in Venezuela, which has been severely affected by hyperinflation, citizen have started using the app to pay for essential goods and services.

Yet, the service has also experienced some backlash along the way. Countless people reported that they have been scammed by other Zelle users. These fraudulent users would sell a product or service (on a platform like Craigslist), ask the buyer to send the money, retrieve it, and delete their account.

Zelle and its participating banks have responded by saying that they are not accountable for who their users send money to. To combat these scams, Zelle now has repeated mentions on its website and app that urge users to only transfer funds to family, friends, or anyone in their close circle.

Despite those hiccups, 2020 become an extremely successful year for the payment network. Users conducted a total of 1.2 billion transactions and sent $307 billion to each other.

Growth continued well into 2021. Tens of millions of consumers and business owners now use Zelle to send money between each other.

How Does Zelle Make Money?

Zelle does not make any money as of today. During the clearXchange days, its participating banks tried to impose fees for every payment made.

These plans were shut down fairly quickly given that other services like Venmo or Square Cash were free of charge right from the get-go.

Zelle will remain free of charge for the foreseeable future. That’s because its participating banks need to retain their customers and safeguard themselves against upstarts like Chime or Venmo.

Furthermore, in 2018, Zelle launched a feature that allowed its users to pay businesses for goods and services. Merchants, in this case, pay up to a 1 percent payment processing fee to either Mastercard or Visa. That revenue is then shared with the bank that has issued the card.

Future sources of monetization may include the launch of a Zelle-branded debit or credit card or the promotion of other financial products within the Zelle app (i.e. earning money via affiliate commissions).

The company behind Zelle, Early Warning Services, in all likeliness receives payments from the participating banks in exchange for creating and maintaining the Zelle network. But as previously stated, the Zelle app itself does not generate any revenue for its mother company.

Who Owns Zelle?

Zelle is owned by FinTech company Early Warning Services LLC. Early Warning provides fraud management and prevention services for other financial institutions. It operates offices in Chicago, Tempe, San Francisco, and Scottsdale.

Early Warning Services, in turn, is owned by a group of other banks. These include Bank of America, Chase, PNC, U.S. Bank, Wells Fargo, Capital One, and BB&T.

Hi folks, my name is Viktor! By day, I lead a tech team of 10 for an e-commerce startup. At night, I work on expressing my weird thoughts through this blog. And if there's time, I cuddle my cat..