When Zelle launched less than a month ago, its members boasted the nation's banks and credit unions were finally putting aside their differences to combat Venmo and other third-party P-to-P apps. But old habits die hard.

Zelle has its roots in a service called clearXchange, which launched in 2011, but its bank owners are marketing it as a new service that shares branding and ideals across all institutions that offer Zelle. Despite this, the original clearXchange platform never went away, leaving consumers baffled about how to use the new system and disentangle themselves from the old one.

Zelle identifies consumers by phone numbers and email addresses, rather than account numbers, and customers are reporting they cannot sign up with Zelle if their phone or email was linked to clearXchange under an old bank relationship. Users report being informed by bank staff that they have to go back to the original bank to sever their contact details from their clearXchange account if they want to use Zelle at another financial institution.

Network effect or cutting corners?

It's clear that in launching Zelle, many of its member institutions chose to simply migrate their clearXchange users to the relaunched and rebranded service. This would seem to be a convenience, comparable to Apple’s migration of user data via iCloud whenever a customer buys a new iPhone. But if executed without end user awareness or consent it can be an irritation, like Apple’s widely panned decision to push out a free U2 album in 2014 without a clear way to delete it from iTunes accounts.

This automatic, stubborn link between clearXchange and Zelle accounts could be put down to early teething trouble, since there is invariably a period of fine-tuning when any new product goes live for the first time. Or it could be a deliberate competitive move by individual banks.

There is a clear advantage to financial institutions that can keep their customers on board with Zelle during this transition. It makes that account "sticky," and is yet one more thing that consumers would have to think about when closing their accounts.

And while consumers may not feel any strong attachment to their checking account numbers, they identify strongly with the phone number and email address linked to Zelle.

"When mobile numbers are fast becoming another anchor for consumer identity, this move of auto-enrollment to prevent customers from using Zelle elsewhere, at the very least is a dark pattern,” said Cherian Abraham, digital payments and commerce executive at Experian.

Can they do this?

There is another aspect to the rollover of clearXchange accounts into Zelle: Should the FIs explicitly ask for consent, or is the prior consent given to banks and credit unions for clearXchange transferable?

According to Zelle, it's actually the former.

“We do not allow banks to pre-enroll into Zelle. Zelle is designed to provide choices for how they send and receive money," Early Warning said in a statement provided to PaymentsSource.

While this line from Zelle would appear unambiguous, it is being interpreted with a high degree of latitude by banks.

For example, Bank of America considers Zelle to be an “enhancement” to its pre-existing money transfer service, and therefore moving customers over to Zelle doesn’t require any further notification.

“When customers use our P-to-P service for the first time, they are taken through an enrollment process and must accept the terms and conditions at that time,” said Betty Riess, a Bank of America spokeswoman. “What you are seeing now is an enhanced version of the P-to-P capability that existed prior to the introduction of the brand.”

Wells Fargo has also ported existing clearXchange credentials from its SurePay service to Zelle. However, Wells has been more explicit in terms of communication of this activity. Customers were notified of a “Service Addendum” that supplements their Online Access Agreement by email explaining that use of Zelle was an implicit agreement of the amendment.

Others were very clear about compliance with Early Warning's expectation. Alan Aldinger, PNC vice president of media relations, stated, “PNC is in a phased rollout with new mobile apps that offer Zelle. PNC does not auto-enroll customers and their consent is required before they can begin using Zelle.”

There is therefore considerable license being deployed the interpretation of Zelle’s statement on pre-enrollment, but this perceived gray area may be more binary. A legal resource familiar with the payments industry told PaymentsSource that Zelle, having its own Terms of Service (TOS), can be considered separate and distinct from P-to-P services offered by banks' previous money transfer apps and therefore requires consent. Without this, in his interpretation, “By auto-enrolling you, banks are opting you into a TOS that you never agreed to.”

Are Zelle's expectations realistic?

One of the key reasons for launching Zelle was to create a uniform and consistent user experience across separately branded banking channels.

"Third-party competitors out there, they have that consistency," said Ian Macallister, vice president of strategic partnerships at Early Warning, in a presentation at SourceMedia's Card Forum in May. To do otherwise introduces friction that "kills the transaction," Macallister said. That inconsistent branding was "the biggest hurdle we had at clearXchange," he added.

Zelle’s future depends on participating banks working cooperatively to build not just consistent branding but a consistent network where the whole is greater than the sum of its parts. This is achievable, but Early Warning must go in with the understanding that its constituents are still rivals. The inconsistent process of auto-enrolling Zelle users and the less than altruistic activity of some participating financial institutions points to a breakdown in Early Warning's strategy.

Early Warning has been successful in networking banks to collectively fight fraud, but there is a clear advantage in combining strengths in that scenario. In P-to-P payments, the value proposition for financial institutions is less clear. Further, the competitive landscape is already well saturated with providers, and likely to become more so as Apple’s P-to-P service gains steam and international players such as AliPay cross into the U.S.

In the face of these growing threats, Zelle’s members may feel more urgency to work as a team to ensure that Zelle is more than a rebranding veneer.

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Nick Holland

Nick Holland

Nick Holland is a Senior Analyst at PaymentsSource. He has previously held analyst roles at Javelin Strategy & Research, Yankee Group and Aite Group.