Some of America's biggest banking and financial services companies are setting themselves up to go head-to-head against PayPal's massively popular Venmo digital payment service, escalating a trend of consumers bypassing cash transactions altogether.
In news that has been teased in recent months but was announced formally in a Monday press release, institutions including Bank of America, Citi, Wells Fargo, MasterCard, Visa, PNC, Morgan Stanley and Capital One threw their support behind the mobile payment network and app Zelle, which is expected to go live early next year.
Zelle – its name rumored to be a shortening of the word "gazelle" to highlight its speedy service – is the evolution of a similar service rolled out a few years ago called clearXchange. It's been billed as a "new, faster payments network" that will allow users to "send, request and split payments with their friends and family." In essence, it will allow users with access to email or a mobile phone to send money to others without making a trip to the ATM.
A similar service, PayPal's Venmo, has already made splitting the cost of a pizza easier while putting a dent in the issuance of IOU notes, particularly among millennials. Venmo earlier this year announced it had overseen $1 billion in transactions in January alone – more than two and a half times its total from January 2015 and more than 10 times what was seen the January before that. On a year-over-year basis, Venmo's transaction totals were up 154 percent in the first quarter of 2016 and another 141 percent in the second quarter of this year.
"Early customer feedback has validated the demand for Venmo as a way to pay in apps that millennials use, and PayPal plans to make the product more available to merchants and consumers later this year," the company said in a first-quarter financial statement.
Venmo since has rolled out a feature that allows users of outfits like Munchery and delivery.com to use their accounts to buy products or split a service's cost between friends, in lieu of exchanging cash.
But Zelle is poised to take advantage of a subtle Venmo shortcoming: that transfers are not necessarily instantaneous. Per Venmo's Help Center, "bank transfers initiated before 7 p.m. ET on business days will typically be available in your bank account the next business day."
That translates to a delay between when a payment is made by a buyer and when money will actually arrive in a seller's bank account, particularly if a weekend or holiday comes into play. And that can potentially be exploited by scammers who approve and then cancel transactions to get out of making a payment after goods or services have been exchanged.
It's not dissimilar to canceling a check that's been issued before it's cashed. Venmo's Help Center indicates the company contacts users if its employees "identify an issue." But its terms of service note that the company does not "guarantee the identity of any user of the Venmo Services or that a sender or a recipient can or will complete a transaction."
So while Venmo is now handling billions of dollars in legitimate transactions, Zelle's partnership with big banks, Visa and MasterCard is expected to allow for more immediate funds transfers. The Zelle press release includes seven uses of the words "fast" or "faster" and five total references of "safer" and "secure" – a hint to how it hopes to distance itself from its competition.
"We are pleased to partner with the leading financial institutions and financial service organizations in the country to make our vision for faster payments a reality for millions of consumers nationwide," Paul Finch, CEO of Early Warning, the company behind Zelle, said in a statement.
That doesn't mean Zelle will necessarily be scam-free, but it will undoubtedly further a shift away from cash transactions that not long ago were ubiquitous across the country. A March report from CreditCards.com indicated 6 in 10 Americans with a credit card typically pay cash for purchases of less than $5, but that cash usage had fallen 7 percentage points from 2014.
A separate Gallup poll earlier this year found that only 24 percent of those surveyed said they use cash for all or most of their purchases – compared with 36 percent who said the same five years ago. This was particularly evident among those between the ages of 23 and 34, with 21 percent saying they frequently use cash after 39 percent said so half a decade ago.
"These differences by age may be attributed to younger Americans generally embracing mobile technology and payments more systematically than older Americans do," the Gallup report said. "The economy has become more internet-oriented, and it is already becoming easier to make purchases using mobile technology. People are more familiar and comfortable with cashless transactions and are now primed to use those services in live retail environments."
The widespread prevalence of credit and debit cards, the steady rise of e-commerce and the introduction of services like Apple Pay all have eaten into the share of transactions in the U.S. for which cash is convenient or required. A recent report from a San Francisco Federal Reserve analyst noted that cash usage is hardly in danger of dying out in the U.S. anytime soon, but that the "cash averse are [more] likely to be young."
And with millennials becoming an increasingly large portion of America's adult consumer base, outfits like Zelle and Venmo are banking on this demographic to help mobile and digital payment programs take off.