Merchants are key as Zelle's sibling Paze seeks growth

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Early Warning Services has gained some traction in the months since it has launched Paze — the bank wallet it hopes will someday take hold as widely as Zelle and serve as an alternative to mobile wallets from Apple and Google. But payment experts say attracting merchants will be key, and that will take time.

Paze began in 2023 as a pilot for customers of the seven large banks that own EWS and has since expanded to include about 1,000 smaller financial institutions for whom Elan Financial Services is a processor, according to a Paze spokesperson. In addition, Paze has signed about 20 merchants and is partnering with technology providers that support the merchant payment ecosystem, including Cybersource, Aurus and Spreedly, to build additional relationships, the spokesperson said.

Still, building up a new payment mechanism takes time, and Paze has had to deal with other setbacks, including the July departure of managing director James Anderson, a former Mastercard executive. The spokesperson didn't comment on the reasons Anderson left and said Paze would be announcing a new leader soon. Anderson could not be reached for comment.

Paze does, however, have some things going in its favor, including the backing of major banks who control the lion's share of credit card volume in the U.S. — Bank of America, Capital One, JPMorgan Chase, PNC, Truist, U.S. Bank and Wells Fargo. Collectively, these banks have scores of potential consumers who might be willing to try the new payments mechanism, said Rick Oglesby, president of AZ Finance Group. "They're not starting from scratch from a consumer perspective," he said.

The potential allure of Paze for consumers is that, at checkout, they can skip manual card entry and pay in seconds without creating new usernames or passwords. The process is designed to simplify checkout, reduce abandoned shopping carts and foster small-business growth.

Where Paze needs to focus, Oglesby said, is broadening its merchant base, which will be key for how fast the payments solution takes off, if at all. "You have to find merchants for those consumers," he said.

Small merchants who tend to lose business to larger competitors offering more seamless checkout solutions are ideal targets, Oglesby said. If customers are able to complete sales more easily, that overcomes a pain point and is an alternative to Google Pay or Apple Pay, he said.

It's a bit of a chicken-egg conundrum. If Paze can gain traction with merchants, more customers may be interested. That, in turn, should encourage more banks to sign up, said Matt Frye, chief product officer of payments platform Dash Solutions. Any bank that participates in Zelle should be low-hanging fruit, at least in terms of having a level of comfort and recognizing the value, he said.

"Ultimately, we think the smart play is for the banks to meet consumers where they want to be met — on their devices, in their preferred channels and in their favorite apps," Nick Babinsky, chief product officer of Solutions by Text, a messaging and payments platform, said in an email.

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Oglesby said non-owner banks would also gain the opportunity to compete with the likes of Apple and Google since, presumably, Paze would court them for a lower cost. The Paze spokesperson did not comment on the strategy except to say the service would be free to financial institutions until 2026. Paze does not directly charge fees to consumers or transaction fees to merchants.

Despite some of the recent inroads, some financial industry professionals are circumspect about Paze's potential for large-scale success. Major merchants prefer to control customer card data and are more likely to prioritize established options like PayPal, Apple Pay and Venmo, which come with benefits such as lower cart abandonment and active user bases in the hundreds of millions, said Richard Crone, who heads Crone Consulting. "Paze isn't a substitute for supporting these proven options," Crone said. Banks should continue to focus on wallets with a proven track record and broader consumer acceptance, he said.

Still, Paze is aiming for continued growth. "Paze is seeing great traction and continues to onboard an exciting array of new partners and merchants, targeting leaders in a variety of retail and e-commerce spaces," the spokesperson said.

Its list of merchants includes Sephora, ShopRite, The Fresh Grocer, Party City, Broadway.com, 1-800-Flowers.com, and gourmet gift company Harry & David. That's in addition to GoDaddy's online payment options for small businesses, announced in October 2023.

Paze has also added some key technical integrators, including Endava and Deluxe-owned First American Payment Systems. "We're being intentional in building out a strong network of entities that will help build a solid footprint for Paze," the spokesperson said.

"Like any new product you bring to market, adoption takes time," Jamie Walker, head of merchant payment services at U.S. Bank, said in an email. "We are actively adding merchants today, and as both consumer and merchant awareness of Paze grows and they see the convenience it brings, demand will follow."