US Small Business Disbursements Driving Zelle Growth

September 13, 2022
Since its launch five years ago, the Zelle app has processed more than 5bn transactions, with disbursements and small business payments driving its most recent growth.

Since its launch five years ago, the Zelle app has processed more than 5bn transactions, with disbursements and small business payments driving its most recent growth.

Launched in 2017 by the largest US banks, Zelle has been used by consumers and businesses to make transfers more than 5bn times, with a total value of nearly $1.5trn, according to Early Warning Services, Zelle’s network operator.

The US peer-to-peer (P2P) payment app connects nearly 1,700 banks and credit unions and says it has worked to give consumers of minority depository institutions additional tools to gain equitable access to financial services.

Payment values increased by 29 percent year-on-year, while payment volume increased by 27 percent.

During the last quarter, overall payments amounted to $155bn on 554m transactions with disbursements and business payments leading the way.

In Q2 2022, Zelle achieved an 87 percent quarter-over-quarter increase in disbursement transactions, while small businesses sent nearly 8m payments to their employees, contractors and customers.

According to Early Warning Services, Fortune 500 companies, including major online retailers, educational institutions, and national non-profits, are now shifting from checks to Zelle to disburse tuition, rebates, settlements and insurance payments.

"Increased Zelle usage by small businesses year-over-year is impressive," said Erika Bauman, director of commercial banking and payments at Aite-Novarica. "Our research shows that business adoption has more than doubled across the market.”

With the growth of the disbursement and the small business segment, Zelle is now turning into a platform that is more than a P2P service, Early Warning Services claims.

Although the app’s popularity has largely resulted from the fact that both sending and receiving payments on Zelle are cost-free, the growth of business payments could over time be beneficial for the participating banks.

It remains to be seen though to what extent the business segment could continue to grow, considering the fact that use cases may be limited by transaction caps that are significantly lower than those in other payment methods.

Transaction limits on the Zelle network vary by bank and the customer’s profile. For example, Bank of America allows small businesses to initiate 20 transfers up to $15,000 per day, or 60 transfers to total value of $45,000 during a week period, or 120 transactions to a total value of $60,000 over a month.

This means that the service is only really viable for small businesses with limited payroll, freelancer fees, bills or rent requirements, and other operational expenses.

For larger transactions or larger scale businesses looking to benefit from instant transfers, they will most likely use alternatives to payment rails, such as The Clearing House’s RTP network, or potentially the upcoming FedNow service, whose transaction limits are capped at $1m and $0.5m, respectively.

‘Safe payments’

In the announcement, Early Warning Services also touts the safety of the Zelle app, despite news reports finding that Zelle users are struggling to recover money lost to fraud.

Earlier in March, a New York Times article found that fraud “flourishes” on the platform.

Since then, Zelle’s big bank owners have been questioned by top Democratic Senators and a number of Zelle participating banks have faced class action claims over their fraud handling.

These claims allege that banks are misleading their customers when they say Zelle is a secure way of sending payments, whereas in fact there is virtually no recourse for account holders to recoup losses due to fraud.

Early Warning Services now says the network has sent more than 99.9 percent of payments without any report of fraud or scams, suggesting the rate of fraud is 0.1 percent.

Considering that Zelle reported having made 1.8bn payments last year, these figures may suggest that there were 1.8m fraud reports filed by Zelle users.

By comparison, under the EU’s exemption for strong customer authentication (SCA), it considers 0.01 percent fraud rate for transactions below €500 to be a low fraud rate, 0.06 percent for transactions below €250 and 0.13 percent for transactions below €100.

Alternatively, the well documented issue of authorised push payment fraud on the UK Faster Payment services, which reached £504m in 2021, represented just 0.02 percent of total value of transactions, although the service supports significantly higher value transactions than Zelle.

Early Warning Services now assures they are continuously evolving and adapting consumer protection measures, such as introducing real-time safety notifications that alert users to only use Zelle when sending money to people they know and trust and educating consumers on how to stay safe when using digital payments such as Zelle.

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