Zelle users report second outage in a week

A disruption on the Zelle network Tuesday morning halted user transactions for the second time this week, reigniting concerns about the resilience of real-time payment networks.

Users flocked to Twitter to bellyache after more than 1,000 users reported problems with the P2P app around 11 a.m Eastern Time, roughly an hour before complaints began to taper, according to DownDetector, a site that collects user outage reports. Wells Fargo customers were among those to complain on the site, but a spokesman for the bank referred a request for comment back to Zelle. 

"Zelle users may have been unable to send money during a brief period today, but the issue has been resolved," said a spokesman for Early Warning Services, the company that runs Zelle. "Outages on the Zelle Network are typically temporary. We continue to support our network so that consumers and small businesses can send and receive money quickly and easily."

The most recent glitch comes after an outage at JPMorgan Chase prevented thousands of users from making payments a week ago. In January, an outage at Bank of America hampered Zelle payments. All three banks are among Early Warning's seven owners.

The spree of outages has triggered concern over what issues might arise as more digital payments flow through older core banking systems on networks integrated with The Clearing House's RTP network and the Federal Reserve's real-time-payment processing system FedNow. 

"With transactions running into the billions for Zelle, it is the first real-time payment system in the U.S. running at scale," said Richard Crone, CEO at Crone Consulting LLC. "With that said, even a 0.001% error rate can snowball into a significant problem. It's like trying to keep an elephant balanced on a ball — the room for error is minimal."

But while the P2P app's partner banks have taken responsibility for the past two outages, Zelle — which often points the finger at partner banks when outages occur on its network — shouldered the blame for the most recent hiccup. That could put Zelle in view of regulatory scrutiny, said Crone.

"[It] opens up a Pandora's box of risk and possible litigation, if not regulation if they don't point the blame, indeed, to the responsible party," Crone said. "Given the inherent settlement risk of Zelle, they have to be 99.999% sure that the system is processing correctly, and if it isn't they'll shut it down."

Disruptions on real time payment network systems, which are typically more modern than banks' core systems, are rare but not unprecedented, said Peter Tapling, a payments consultant and former Early Warning executive.

"All computer systems have outages eventually. Core network systems like the payment networks, cellular networks, cable networks, etc. go to great lengths to build resiliency and failover capabilities into the network," Tapling said. "But they are not infallible."

As expectations for payments to happen in real-time rise  — especially as more banks integrate with FedNow and RTP — these disruptions will become more apparent, Tapling said.

"The launch of FedNow and the marketing around 'always on, 24x7x365' have shined a spotlight on any financial service that has an outage," Tapling said. "I expect that there have been similar 'outages' with Zelle in the past, but…they were a mere blip in the news-o-sphere."

That could be even more of a problem on the banking side of payment processing, where outdated core infrastructures are more likely to butt heads with the demands of emerging real-time-payment systems. 

"The recent events have us questioning: How ready is Early Warning, or any other financial institution for that matter, to take on the challenges of RTP and ISO 20022 without resorting to a blame game should a problem occur?" said Crone. "These outages test the very foundations of trust and reliability the financial sector is built upon."