Big banks are considering bringing Zelle to retail, positioning them for a big brawl with Visa and Mastercard.
Some of the banks that own Zelle operator Early Warning want to make it a payment option at retailers, competing directly with Visa and Mastercard, according to the Wall Street Journal. But others don't want to make that move and instead want to keep Early Warning focused on fraud prevention.
Al Ko, the CEO of Early Warning, told Protocol in February that Zelle doesn't compete with other payment methods or apps at present. The money transfer and payment service saw strong growth during the pandemic to 1.8 billion payments in 2021, up 49% from 2020. But that pales against the more than 300 billion transactions Visa and Mastercard did, and while Zelle has made some progress in getting people to use it for business payments, it's still mostly used for person-to-person money transfers.
One complication is that while Visa and Mastercard get a cut of transactions they process, those fees, known as interchange, are split with the banks that issue cards and the banks that help merchants receive payments.
Interchange fees have been a valuable source of income for many fintech companies, prompting many to issue Visa or Mastercard debit cards to their customers to spend balances held in spending, payment or brokerage accounts.
The success of Alipay and WeChat Pay in China have led many financial institutions to revisit the idea of direct bank-account payments. Zelle recently introduced QR code payments, a key feature that helped Chinese payment apps gain popularity, but the Zelle feature is still being rolled out across its bank and credit union customer base.