How does Zelle make money?

• Learn what Zelle does.
• See how Zelle makes money.
• Compare Zelle to its competitors.

Are you wondering how Zelle makes money? This peer-to-peer payment network enables its users to send money fast to family and friends. We explain everything you need to know about how Zelle earns and why Zelle is free for users.

Company overview

Zelle initially started as ClearXchange. Founded in 2011 by the Bank of America, JP Morgan Chase, and Wells Fargo, it was the banking industry's answer to the popular payment apps Venmo and PayPal. However, after its launch, the app gained a reputation for being somewhat slow, with a clunky interface that wasn't user-friendy.

The company changed its approach in 2016, with the banking consortium selling the app to Early Warning, owned by another banking consortium. Early Warning put in the development work the app needed to meet the demands of the payment market, rebranding to Zelle.

The Zelle platform launched in 2017, rolling out to 30 partner banks in its network. Over 924 banks participate in its payment network. In 2020, Zelle facilitated over $307 billion in payments, earning its network partners impressive revenues from its service without charging fees, leading many to ask, "how does Zelle make money without fees?"

What does Zelle do?

Zelle is a P2P payment service facilitating transactions between platform users. It is owned by Early Warning Services, a private financial services company owned by the Bank of America, BB&T, Capital One, JPMorgan Chase, PNC Bank, U.S. Bank, and Wells Fargo. Zelle allows users to send money directly from their bank account without the need for a bank wire or incurring transaction fees. Given the banking industry's proclivity for charging fees, it's no surprise that so many wonder how and why Zelle is free to use.

After a fast and simple registration process, users download the app and use it to send money to anyone registered on their payment network. It uses a phone number or email address as an identifier, much like PayPal. Transactions are fast, with funds reflecting in the recipient's account in minutes.

The service is only available to US bank account holders.

How does Zelle work?

Zelle initially started as "ClearXchange," founded in 2011 by the Bank of America, JP Morgan Chase, and Wells Fargo; Zelle was the banking industry's answer to the popular payment apps Venmo and PayPal. However, after its launch, Zelle was somewhat slow, with a clunky interface.

Some users would complain that the app would take up to 5 days to process a payment and reflect in the recipient's bank account. Only a few banks worked with the app, and Zelle only worked with partner bank apps.

The company changed its approach in 2016, with the banking consortium selling the app to Early Warning, owned by another banking consortium. Early Warning put in the development work the app needed to meet the demands of the payment market, rebranding to Zelle. The Zelle platform launched in 2017, rolling out to 30 partner banks in its network.

As a result, the app gained 100 million users right away, allowing for rapid adoption in the retail payment app market. Early Warning embarked on an aggressive marketing campaign, spending $1 million for a single TV ad to promote the app.

To simplify the interface and user experience with Zelle, Early Warning standardized its offering and platform interface across all banks. In the platform's early days, the app showed huge growth in the millennial and baby boomer markets.

Since the app facilitated digital payments without the need to migrate outside of their bank account, Zelle gained rapid popularity for its security and ease of use. Just two years after its launch, Zelle claimed the top spot as the industry leader in P2P payments.

How Zelle makes money

One of the interesting things about the Zelle model is that the company doesn't generate revenues independently. Owned by a consortium of banks through its parent company, Early Warning, Zelle facilitates these payments without charging the banks a third-party fee.

Facilitating payments

Zelle serves as a bridge between users and their respective banks, enabling seamless peer-to-peer money transfers without the need for third-party intermediaries. While Zelle itself doesn't directly profit from these transactions, its existence drives significant transaction volume for its partner banks.

Bank partnerships

Zelle is unique in that it's owned by a consortium of major banks through its parent company, Early Warning. So instead of Zelle operating as a standalone profit center, its primary function is to serve and benefit its owner banks. The more transactions Zelle processes, the more revenue these banks potentially earn.

Merchant transactions

In an effort to expand its services and reach, Zelle introduced a feature allowing users to pay merchants directly for goods and services. When users choose to pay merchants via Zelle, the merchant might incur a fee, typically around 1%. This fee is then directed to the bank that facilitates the payment.

We expect that Zelle may introduce a debit-card system similar to Venmo, allowing users to pay for goods and services at any retailer. While there is no official data to support this claim, we imagine Early Warning charges the banks for maintaining the Zelle app.

Future growth engine

Zelle continues to grow rapidly, with the US population rapidly moving towards digital methods for making payments. The convenience of using Zelle through the user's bank account makes it a convenient and useful alternative to its competitors.

Expand internationally

Since Zelle is US-centric, their most significant — and obvious — opportunity for growth would be to expand its services internationally. By partnering with banks outside the U.S., Zelle can tap into new markets.

Issue debit cards

Making Zelle available with a debit card would be technologically regressive, but it would also provide the company with a revenue stream thanks to transaction fees. This may require a partnership with a payments network such as Mastercard or Visa to operate.

Add financial services

Zelle's bread and butter is transferring money between users (and businesses). Depending on their appetite for growth, there is an incredible opportunity to bolt on complementary financial services like buy now pay later, personal loans, investment options, insurance products, and wage advances.

Develop merchant partnerships

Expanding on its merchant transaction capabilities, Zelle can form partnerships with e-commerce platforms, retailers, and other businesses. Offering incentives, discounts, or loyalty programs for using Zelle as a preferred payment method can drive transaction volume. BNPL payments disruptors such as Afterpay, Affirm, and Klarna have employed these strategies to spread their adoption and grow transaction volume.

Integrate with other platforms

Zelle can grow by integrating its services with other platforms, such as e-commerce sites, gig economy apps, or even social media platforms. This integration can make transactions more seamless and increase Zelle's visibility and usage.

Competitors

Zelle competes with other firms in the P2P space. However, none of these competitors offer you a direct link to your bank account, where users can seamlessly transfer funds to third parties. Some of its top competitors include the following fintech firms.

• Venmo. A popular subsidiary of PayPal offering debit cards and money transfers using a P2P model.
• PayPal. The payments system supporting online money transfers.
• Block. (Formerly Square, offers merchant services and point-of-sale payment solutions along with P2P payments via Square’s Cash app.
• Apple Pay. Mobile payment available on Apple devices.
• Google Pay. Digital wallet platform and online payment system primarily for Android.