Zelle last year moved more money than Venmo and Cash App combined, though it launched years after those upstarts. Now Zelle's upcoming
Early Warning Services, the bank-owned consortium that operates Zelle, will reveal the branding of the bank wallet within days in preparation for a broad rollout this fall under the leadership of former Mastercard exec
Some observers predict that the bank wallet — marketed as a streamlined way for consumers to shop online using Visa and Mastercard through their banks' mobile apps — will have a tough time going up against entrenched digital wallets like Apple Pay and Google Pay.
But a few observers think EWS has a good shot at performing an encore of Zelle's success with a customized bank wallet designed to free consumers from having to enter card account details on merchant websites.
EWS already has demonstrated an ability to get banks to move together toward a common goal. Despite a slow start and a black eye from widely publicized scams that continue to plague Zelle, EWS has used its market leverage to steadily expand the P2P platform's reach and momentum, even winning over a
"Simply by positioning this as a bank wallet, EWS has a unique marketing proposition, because it implies a different trust factor with the bank that holds your hard-earned money," said Sara Seguin, a principal advisor for fraud and identity risk at Alloy, which provides digital customer-verification services to banks.
Despite the widespread success of Apple Pay and Google Pay, Seguin said many consumers are still wary of using third-party apps for purchases.
"If it was just another digital app, I agree it would face tougher odds of gaining adoption against Apple Pay, but a bank wallet will be viewed very differently. If it provides true ease of use along with a high level of trust and security, it could resonate with consumers," Seguin said.
Banks possess a lot of marketing power and could capitalize on consumers' perception that banks are more secure and trusted than third parties for e-commerce, said Rodman K. Reef, managing principal with Reed Karson Consulting. However, the bank wallet's success in a marketplace crowded with other seamless online checkout options is far from guaranteed, he cautioned.
Years before Zelle launched, the concept was in development through collaboration of the largest banks that own EWS, which transformed their existing P2P service clearXchange into what became Zelle. There is no similar existing foundation for EWS' new bank wallet, Reef pointed out. The clearXchange payment service was officially shut down in July 2022.
"Zelle was a long journey to adoption, and it took a lot of money, and the same thing will be true of the bank wallet," Reef said.
EWS said the wallet will go live for merchants and key bank partners in June, with all financial institutions welcomed this fall. The timing could be critical.
Credit card issuers are already tightening underwriting standards in response to the slowing economy, Moody's Investors Service said in a recent report analyzing the health of banks' credit card asset-backed securities.
"Banks had until recently been loosening credit standards following lenders' quick retreat at the pandemic's start," Moody's said, noting that the growth rate of credit card borrowing rose to 15.2% at the end of 2022 versus 4.5% a year earlier.
As inflation continues to pressure household budgets, Moody's expects consumers to lean harder on credit cards.
"We expect credit card loan demand to remain elevated in the coming quarters as disposable income and excess savings decline due to high inflation, which is inadvertently causing consumers to rely on their credit cards to fund spending," Moody's said.
A bank wallet that brings issuers closer to customers seeking new or expanded credit lines could benefit both sides.
The pandemic-fueled expansion of
"As we move into this backdrop where you have much higher funding costs for BNPL, and merchants are feeling some pain with discretionary spending coming down and the economy slowing, they're going to be more price-sensitive," Sakhrani said, referring to the fact that merchants have paid fees of up to 6% for fintech-powered BNPL deals like those Klarna and Affirm offer.
As merchants look less likely to fund those kinds of deals, and regulatory scrutiny looms, credit card issuers are in a position to grow faster, even in a slowing economy, Sakhrani said.
"BNPL came along at the right time in the right place, with a unique distribution model as a lot of commerce moved online during the pandemic. But we were never very bullish on their long-term success versus credit cards, because credit card issuers have significantly more scale in their ability to reach creditworthy people, they can fund loans at a very effective price and they're used to the regulatory environment," Sakhrani said.
Though Sakhrani didn't speculate on the EWS bank wallet's potential for success, he said credit card networks and issuers are poised to work with merchants for their mutual benefit.
While U.S. merchants continue to push for lower credit card interchange fees, there is room for market negotiation between card networks and merchants, he said.
"In the U.S. we see concentration in pools of volume, and where you have larger merchants — large aggregators of volume — they have more pricing power," he said.
