Zelle launch - proof that fintech companies can influence large banks
Since its founding in 2009, Venmo is one of the most famous names in the field of fintech. The author of the material compares this project with the competing application Zelle, developed by a number of large American banking institutions.
The application, which began as a modest idea of ​​former neighbors in a dormitory college, was the first to make fast and easy money transfers between friends and last year processed payments in the amount of $ 17.6 billion, which is 135% more than in the previous year. In 2016, Time magazine named it one of the best apps of the year, and in 2017, Fortune magazine called it one of its revolutionary brands . The service, no doubt, changed the direct payments environment , taking advantage of the inefficiency of transferring money to friends using traditional methods offered by large banks.
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Now, however, the word is for large banks - from this month Zelle will allow more than 86 million US mobile banking users to easily send and receive money through the application. On the one hand, this may mean the beginning of the end for Venmo, and on the other, it may turn out that large banks were late with innovations in the field of money transfers without intermediaries, and that users are already too used to Venmo to switch to something new.
But no matter what service as a result wins, this case is proof that fintech companies are capable of forcing large banks to create innovations for consumers that could otherwise be ignored. To understand the full scope of what is happening, we must first understand what brought Venmo to popularity and what competitive advantage Zelle has in comparison with it.
As we have said, the Venmo service was founded in 2009 by two former neighbors in a dormitory in college who did not like the difficulty of transferring money from one person to another. They wondered: why can we make almost any operations from our phones, but for the smallest money transfers, we have to either have cash or write a check? Thus, the idea of ​​a new service was born, and after some changes in the design, what has become widely known today under the name Venmo.
The application immediately differed from others from the services of direct money transfer due to the many features that are most attractive to the two thousand generation. Venmo allows users to easily transfer funds to each other by the mobile phone number or email address of the recipient, and its business model also integrates payments into social networks, distinguishing it favorably from competitors in the field of electronic payments.
The service places payment data and individual messages on a public social platform just as a user can share photos and news on Twitter. This feature has helped Venmo to become much more than just a payment service without intermediaries: it is something like a phenomenon in social networks. These characteristics of social networks allowed Venmo to become more than just a service of payment opportunities, and made it the most popular among the generation of millennials and campuses.
After the rapid growth in popularity, the service was ultimately acquired by PayPal in 2013 and has continued to evolve since. The amount of money transferred through Venmo is growing almost exponentially, and the phrase “I will transfer money to you through Venmo” has become common among the two thousandth generation.
After watching Venmo conquer its market and make transactions for its customers, large banks decided to put an end to this. In 2011, Bank of America, Wells Fargo and JPMorgan Chase teamed up to work on a new digital payment service that would allow their customers to transfer money to each other. The first product they developed with Early Warning, a subsidiary banking company, was called clearXchange. Earlier this month, it was officially renamed Zelle, with a focus on attracting as many financial institutions as possible. Thanks to potential collaboration with more than 30 leading financial institutions in the United States and the world, they are ready to present Zelle to the public as a competitor to Venmo.
Zelle's main advantage over Venmo is his obvious connection with the financial institutions that his clients use.
To make a money transfer through Zelle, the client uses his usual mobile bank application, performs the transfer, and the money almost immediately comes to the recipient's bank account. Meanwhile, Venmo doesn’t work so fast: although transactions are instantaneous on the Venmo network, money comes to the recipient’s Venmo purse, from where they need to be manually transferred to their bank account, which can take several days. Zelle’s direct connection with financial institutions gives customers not only quick access to their money, but also an additional sense of security. If all direct transactions can be made through the mobile banking applications, customers do not have to provide their banking information and passwords to a third party.
Here's how this explains Aditya Bkhazin, director of information technology, head of consumer solutions, asset management and capital management at Bank of America:
In addition, Early Warning has entered into a strategic partnership with some leading payment systems (CO-OP Financial Services, FIS, Fiserv and Jack Henry and Associates), which will allow an additional millions of users to try Zelle through local banks and credit unions. According to Paul Finch, CEO of Early Warning:
It is not yet known whether banks will add a commission for transfers through Zelle, but this is unlikely, since Venmo does not charge any fees.
In the field of fintech, large banks have earned a bad reputation for their stubbornness over the years. This is one of the reasons for the emergence of such a large number of successful FINTECH startups. Their practice was outdated and too slowly adapted to the mobile world, which allowed Fintech firms like Venmo to settle right under their noses and process billions of dollars of transactions for their customers. However, the large-scale release of Zelle proves that these daring companies are forcing large banks to rethink their values ​​and consider new ideas that will benefit consumers, even if they prove unprofitable.
The issue of profitability was the main reason why banks waited so long before responding to Venmo - the service lacks an obvious opportunity to generate income.
Until recently, banks were not opposed to the fact that Venmo helps the two thousandth generation to transfer small amounts of money, but the Early Warning application developer has more ambitious plans to release Zelle, and he is ready to sacrifice short-term returns in favor of a more important issue.
Zelle's goal is to bring direct money transfers “from the generation of two thousandths to the mainstream,” according to Lou Ann Alexander, who heads the Early Warning payment department. Both Early Warning and large banks recognize that the sphere of payments without intermediaries and the use of mobile bank applications are growing rapidly and should play a much more important role in society, and banks want to take part in this. In addition to integrating into existing banking applications, Zelle will release its own application in the coming months, which will offer users the same buns.
The cooperation of so many large financial institutions with Zelle is a truly revolutionary event in the world of payments without intermediaries and the FINTECH sector as a whole. Before the advent of Zelle, the best that most banks could offer to transfer money was to write a check or make a bank transfer. Both of these actions seem ridiculous and unnecessary given the capabilities of smartphones. Now we are witnessing the real cooperation of banks and FINTECH companies for the benefit of the consumer, and this is largely due to the pressure exerted by such a FINTECH startup startup like Venmo. Regardless of what happens with the competition between the two services, the launch of Zelle confirms that large banks are under pressure from fintech firms and know that they need to start acting before they are left behind in terms of technology. In the end, it will be interesting to follow the development of events and how banks will relate to other fintech firms encroaching on their territory, and whether they will start to introduce innovations on their own rather than being forced.
The application, which began as a modest idea of ​​former neighbors in a dormitory college, was the first to make fast and easy money transfers between friends and last year processed payments in the amount of $ 17.6 billion, which is 135% more than in the previous year. In 2016, Time magazine named it one of the best apps of the year, and in 2017, Fortune magazine called it one of its revolutionary brands . The service, no doubt, changed the direct payments environment , taking advantage of the inefficiency of transferring money to friends using traditional methods offered by large banks.
')
Now, however, the word is for large banks - from this month Zelle will allow more than 86 million US mobile banking users to easily send and receive money through the application. On the one hand, this may mean the beginning of the end for Venmo, and on the other, it may turn out that large banks were late with innovations in the field of money transfers without intermediaries, and that users are already too used to Venmo to switch to something new.
But no matter what service as a result wins, this case is proof that fintech companies are capable of forcing large banks to create innovations for consumers that could otherwise be ignored. To understand the full scope of what is happening, we must first understand what brought Venmo to popularity and what competitive advantage Zelle has in comparison with it.
How did Venmo come about?
As we have said, the Venmo service was founded in 2009 by two former neighbors in a dormitory in college who did not like the difficulty of transferring money from one person to another. They wondered: why can we make almost any operations from our phones, but for the smallest money transfers, we have to either have cash or write a check? Thus, the idea of ​​a new service was born, and after some changes in the design, what has become widely known today under the name Venmo.
The application immediately differed from others from the services of direct money transfer due to the many features that are most attractive to the two thousand generation. Venmo allows users to easily transfer funds to each other by the mobile phone number or email address of the recipient, and its business model also integrates payments into social networks, distinguishing it favorably from competitors in the field of electronic payments.
The service places payment data and individual messages on a public social platform just as a user can share photos and news on Twitter. This feature has helped Venmo to become much more than just a payment service without intermediaries: it is something like a phenomenon in social networks. These characteristics of social networks allowed Venmo to become more than just a service of payment opportunities, and made it the most popular among the generation of millennials and campuses.
After the rapid growth in popularity, the service was ultimately acquired by PayPal in 2013 and has continued to evolve since. The amount of money transferred through Venmo is growing almost exponentially, and the phrase “I will transfer money to you through Venmo” has become common among the two thousandth generation.
What is different about Zelle?
After watching Venmo conquer its market and make transactions for its customers, large banks decided to put an end to this. In 2011, Bank of America, Wells Fargo and JPMorgan Chase teamed up to work on a new digital payment service that would allow their customers to transfer money to each other. The first product they developed with Early Warning, a subsidiary banking company, was called clearXchange. Earlier this month, it was officially renamed Zelle, with a focus on attracting as many financial institutions as possible. Thanks to potential collaboration with more than 30 leading financial institutions in the United States and the world, they are ready to present Zelle to the public as a competitor to Venmo.
Zelle's main advantage over Venmo is his obvious connection with the financial institutions that his clients use.
To make a money transfer through Zelle, the client uses his usual mobile bank application, performs the transfer, and the money almost immediately comes to the recipient's bank account. Meanwhile, Venmo doesn’t work so fast: although transactions are instantaneous on the Venmo network, money comes to the recipient’s Venmo purse, from where they need to be manually transferred to their bank account, which can take several days. Zelle’s direct connection with financial institutions gives customers not only quick access to their money, but also an additional sense of security. If all direct transactions can be made through the mobile banking applications, customers do not have to provide their banking information and passwords to a third party.
Here's how this explains Aditya Bkhazin, director of information technology, head of consumer solutions, asset management and capital management at Bank of America:
“You do not need to transfer the code or branch number of your bank ... to third parties. You do not need to transfer your credentials - username and password - to third parties. Everything is much safer in your banking application. ”
In addition, Early Warning has entered into a strategic partnership with some leading payment systems (CO-OP Financial Services, FIS, Fiserv and Jack Henry and Associates), which will allow an additional millions of users to try Zelle through local banks and credit unions. According to Paul Finch, CEO of Early Warning:
“Fragmented irritated consumers. Inconsistency makes it difficult to send and receive money between banks. Zelle unites the financial community with a single payment solution for direct money transfer in real time for millions of consumers. ”
It is not yet known whether banks will add a commission for transfers through Zelle, but this is unlikely, since Venmo does not charge any fees.
What is the big picture?
In the field of fintech, large banks have earned a bad reputation for their stubbornness over the years. This is one of the reasons for the emergence of such a large number of successful FINTECH startups. Their practice was outdated and too slowly adapted to the mobile world, which allowed Fintech firms like Venmo to settle right under their noses and process billions of dollars of transactions for their customers. However, the large-scale release of Zelle proves that these daring companies are forcing large banks to rethink their values ​​and consider new ideas that will benefit consumers, even if they prove unprofitable.
The issue of profitability was the main reason why banks waited so long before responding to Venmo - the service lacks an obvious opportunity to generate income.
Until recently, banks were not opposed to the fact that Venmo helps the two thousandth generation to transfer small amounts of money, but the Early Warning application developer has more ambitious plans to release Zelle, and he is ready to sacrifice short-term returns in favor of a more important issue.
Zelle's goal is to bring direct money transfers “from the generation of two thousandths to the mainstream,” according to Lou Ann Alexander, who heads the Early Warning payment department. Both Early Warning and large banks recognize that the sphere of payments without intermediaries and the use of mobile bank applications are growing rapidly and should play a much more important role in society, and banks want to take part in this. In addition to integrating into existing banking applications, Zelle will release its own application in the coming months, which will offer users the same buns.
The cooperation of so many large financial institutions with Zelle is a truly revolutionary event in the world of payments without intermediaries and the FINTECH sector as a whole. Before the advent of Zelle, the best that most banks could offer to transfer money was to write a check or make a bank transfer. Both of these actions seem ridiculous and unnecessary given the capabilities of smartphones. Now we are witnessing the real cooperation of banks and FINTECH companies for the benefit of the consumer, and this is largely due to the pressure exerted by such a FINTECH startup startup like Venmo. Regardless of what happens with the competition between the two services, the launch of Zelle confirms that large banks are under pressure from fintech firms and know that they need to start acting before they are left behind in terms of technology. In the end, it will be interesting to follow the development of events and how banks will relate to other fintech firms encroaching on their territory, and whether they will start to introduce innovations on their own rather than being forced.
Source: https://habr.com/ru/post/319752/
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