Banks Considering Zelle as a Credit or Debit Card Alternative

Consumers may be able to use the money transfer service in the checkout line.

Banks are mulling the idea of expanding peer-to-peer money transfer service Zelle to point-of-sale transactions, according to a report by the Wall Street Journal. The service has grown by leaps and bounds since the pandemic began, prompting banks to consider new opportunities, particularly as a way to skip the fees charged by Visa and Mastercard on debit and credit card transactions.

Key Takeaways

  • Banks are weighing the use of Zelle for point-of-sale purchases as an alternative to debit or credit.
  • The money transfer service is owned by a consortium of major banks.
  • Allowing consumers to use Zelle as an alternative payment method could wrest some control over rules and fees from payment processing companies Visa and Mastercard.
  • While some of the banks that own the service are ready to move forward, others aren't convinced.

Will Zelle Be Coming to a Checkout Line Near You?

Zelle was first launched in 2017, but since the coronavirus pandemic began, the money transfer service has seen significant growth. In 2021, the service processed 1.8 billion payments between consumers and businesses for a total of $490 billion. That's a 49% increase in payment volume and a 59% increase in payment values from 2020. In that year, the company saw a 58% increase in payment volume and a 62% increase in the payment value

The service's rising popularity has prompted the banks that own it to consider expanding its usage to point-of-sale transactions. It already works with businesses, and the number of payments received by small businesses in 2021 increased by 162% year over year.

But not all of the service's owners are on board. Zelle is a product of Early Warning Service, which is a joint venture between Bank of America, Capital One, JPMorgan Chase, PNC Bank, Trust, U.S. Bank, and Wells Fargo.

According to the Wall Street Journal report, Bank of America and Wells Fargo are in favor of the expansion, while JPMorgan Chase has reservations about the timing. Those in favor can do it on a trial basis, but they can't expand it to the service's 1,450 financial institutions without a vote by all seven banks that own it.

How Would This Change Things?

When consumers use debit or credit cards to make purchases, the merchant pays a fee set by payment processing companies, including Visa, Mastercard, Discover and American Express. But Discover only processed payments on its own credit cards in the U.S., and most of Amex's business is on its own credit card lines as well.

That leaves Visa and Mastercard, which provide the processing for the vast majority of U.S.-based credit card issuers.

When a merchant pays a transaction fee, Visa and Mastercard share some of that revenue with the banks, credit unions and other financial institutions that issued the card being used in the transaction. But the card issuers don't have any control over the amount of the fee or rules associated with the process.

Bypassing Visa and Mastercard via Zelle would cut into the billions of dollars banks make every year on merchant fees. But it would give them more control over setting transaction fees and other rules about the process.

It's unclear yet whether the banks in favor will proceed on their own or if it will even catch on among U.S. consumers, who primarily use plastic in the checkout line. Adding yet another way to pay could overwhelm consumers, leaving them to stick with what they're used to.

However, if Zelle and other payment card alternatives do become mainstream, it could create more competition for Visa, Mastercard and other payment processors.

Article Sources
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  2. Zelle. "Nearly Half a Trillion Dollars Sent by Consumers and Businesses with Zelle in 2021."

  3. Zelle. "Zelle Closes 2020 with Record $307 Billion Sent on 1.2 Billion Transactions."

  4. Wall Street Journal. "Banks Weigh Using Zelle to Challenge Visa, Mastercard."