Have a Bank Account Already? Then, Zelle May be For You.

Zelle’s App Works Seamlessly with Major Banks: 

Chances are that at our age most of you have bank accounts.  If this is the case, you may want to consider Zelle which is a mobile app designed to be integrated with banks.  Launched in 2017 by several banks (Bank of America, BB & T, Capital One, JP Morgan, Chase PNC Bank, US Bank, Citibank, and Wells Fargo), Zelle allows users to electronically transfer money from their bank account to another registered user’s bank account within the United States using either the banks’ App or the Zelle App.  It is very similar to Venmo in that Zelle can be used to split shared costs, pay for services, etc.  Although most of us have heard of Venmo since it’s been around awhile and popular in terms of the number of users, Zelle has surprisingly exceeded Venmo by almost double the total dollar volume processed after its first full year in 2018 which was $122 Billion versus $62 Billion.  

Power Tip:  While Zelle was created for banks to enter the mobile app payment world, it’s important to note that the level of quality of the app, ease of use, integration, and policies of Zelle for each bank vary.  For example, some banks have more restrictive monetary limits on the transfers allowed within a given time.   Currently, there are no fees charged by the banks even though there are significant costs in providing Zelle to its customers; this may change and some banks may start to charge for using Zelle.  

 

How Zelle Works

Creation of Account: There are 2 ways to use Zelle: (1) Participating Bank or Credit Union: For those whose bank or credit union is part of the Zelle network, you can use Zelle in the bank’s/credit union’s app itself as it automatically connects with existing bank accounts.  You do not need a separate Zelle account.  (2) Zelle App: For those individuals whose bank is not within the participating banks network, you can create an account in the Zelle App itself.  In order to enroll in Zelle, you must have a supported Mastercard or Visa branded debit card.

• Source for Payment:  One of the unique features of Zelle is that the source of payment comes directly from your bank account; this is why transfers made through Zelle can be completed within a few minutes at no additional charge.

• Limits on Transfer Amount:  The Zelle App limits transfers to be no more than $500/week.  For those using their bank app, the limits will vary by bank.  For example, Wells Fargo’s limits are $2,500/day or $4,000 in a 30-day period.

Some Important Tips:

• If Your Recipient is Not a Zelle User:  If your recipient is not a Zelle user, she will have to set up a Zelle account within 14 days of notification, to receive payment. 

• Almost Instantaneous Payment Transfer:  Compared with Venmo in which money transfers takes 1-3 days as its Venmo funds must first be transferred into the linked bank account and then sent out, transfers in Zelle take only a couple of minutes (except if the recipient is not enrolled in Zelle which will then take 1-3 business days) since it is already linked with the bank account. 

• Payments Made Cannot Be Cancelled:  Unlike Venmo’s transfer system which allows for cancellation of a transfer before the 1-3 business days that it takes to complete, transfers in Zelle cannot be canceled even if the transfer is to another registered Zelle user.  With Venmo, users have some ability to correct accidental payments or rescind transactions that have not proceeded to the satisfaction of the payer.

Security:  Although Zelle utilizes state of the art sand cryptographical encryption to keep their data and cash transfers secure, it is prone to scamming as detailed below, due to the instantaneous nature of their transfers. 

• Zelle is Prone to Scams:  In one popular type of scam often used in the resale of concert or event tickets, the scammer will request that the buyer send money through Zelle and that they will transfer the tickets upon receipt of funds.  Once they receive the money, these scammers will then shut their bank accounts and disappear.  The buyer is duped into a false sense of security using Zelle because first the app is legitimate and backed by banks who are normally known to serve its client in a protective role (e.g. stop payment on a check), and the buyer is lulled into a false sense of security. 

Noted Bob Sullivan, a consumer advocate, “If you are scammed out of Zelle-bucks, they’re gone. If you buy something online and send the money via Zelle, and the thing never arrives, you are screwed.  No consumer-friendly Reg E to fall back on. No dispute processes. Not even any eBay-like resolution system. The money is just vaporware.“. 

• The Banks who Back Zelle Do not Help if There’s a Dispute:  Once a user makes a transfer, it is final even if that person does not receive the item or the item is not as expected.  In fact, the Zelle FAQ specifically states, “Zelle does not offer a protection program for any authorized payments made with Zelle – for example, if you make a purchase using Zelle, but you do not receive the item or the item is not as described or as you expected.”  This is in contrast to Venmo’s parent, Paypal, which provides protection to its users for any charges for something not received, or not as expected (but this protection is not extended if the transfer was from a friend to friend!).
   
• Funds in Zelle are Insured by FDIC and NCUA:  Since Zelle transfers funds directly through bank accounts, the funds held in a Zelle account is automatically protected by the FDIC and NCUA.  For Venmo users who want their funds to be protected, they would have to transfer their Venmo fund into their bank account which could take 1-3 business days (unless the Instant Transfer process is selected in which case users are charged 1% of the transaction value).

 

Is Zelle Right for You?

• Zelle vs Venmo for the Gen Xers and Babyboomers?:  Although the percentage of GenXers (39-53 years old) and Babyboomers (54-72 years old) using Venmo over Zelle is larger (For GenXers, 25% to 14% and for Babyboomers 10% to 5%), the Cornerstone Advisers  found that of 2, 436 users in Q4 2018, the dollar amount spent for each transaction of Zelle versus Venmo was much higher (For Gen Xers, $164 to $73 and for Babyboomers $270 to $58).

• The Number of Zelle Users is Expected to Rise Substantially:  According to many financial experts, the number of Zelle users is expected to grow substantially as it brings on 170 banks in the queue (and those that follows) since these bank customers will become Zelle users by default.

• Zelle Focusses on Older Age Groups:  With its social network features, Venmo has focused on the younger generations like Millennials.  In contrast, Zelle appears to be focusing on an older demographic with: (1) its automatic linking to banks in which older demographics have accounts and are comfortable with; (2) simplistic technology; (3) straightforward, no frills app; and (4) premium on privacy of transactions. 

So, although Venmo is popular with the younger crowd, Zelle may actually suit your needs better.  Let us know what you prefer in the comments below.