Zelle teams with Clearing House to speed P2P payments — and woo small banks

Early Warning's Zelle person-to-person payments network can now clear and settle those transactions through The Clearing House's RTP network, its real-time payments service, an addition that sets the stage for more banks to sign on.

Zelle banks that already offered real-time funds to consumers still had to wait for the ACH transfer to clear. With RTP, banks will settle the transactions in real time. Bank of America and PNC are the first banks to send Zelle payments over the RTP network, and Early Warning expects the upgrade will encourage smaller institutions to sign up.

"For smaller financial institutions, it is difficult to reconcile with multiple different payment options, so having that ability to know something has cleared and settled and not having to send it through your reconciliation process is a significant benefit," said Lou Anne Alexander, chief product officer of Early Warning.

The RTP request-for-pay option can be used for higher-value or business payments. Transactions of that type would include the ISO 20022 messaging standard to provide extra information about the payment. Zelle's current request-for-pay feature, generally used to remind someone of low-value amounts they owe for splitting a dinner tab or paying a baby-sitter, is not affected by the integration.

For the faster payments to work, both the sender and recipient of transactions have to be enabled on the RTP and Zelle networks. The Clearing House introduced the RTP rails in 2017, and the Zelle network also launched in 2017, coming about through a bank joint venture called clearXchange. The network is owned by Early Warning Services, which in turn is owned by a group of banks that includes Bank of America and PNC.

Early Warning Services offers Zelle for small businesses, which allows business owners to make payments to suppliers or vendors and accept payments from customers. It has been an effective tool for micro businesses like handymen, tutors, dog walkers, cleaning services and massage therapists, Alexander said.

"At this time, Zelle is not concentrating on larger B2B payments, but maybe someday we may do a large corporate capability in alignment with TCH," Alexander said. Still, banks' corporate customers will no longer need to obtain bank account information and instead can transact through the banking system via a customer's phone number or e-mail address used when enrolling in Zelle.

Zelle closed 2020 with 1.2 billion transactions placed, an increase of 58% over the previous year, and a total of $307 billion sent, a 62% increase over 2019. The Zelle network also added 457 new banks in 2020, while 11 banks are offering Zelle for small businesses, reaching 40% of U.S. small businesses.

At the same time, The Clearing House reports that nearly 100 financial institutions (banks and credit unions) are now connected to the RTP network, as are more than 100 issuers. RTP was a key distributor of Paycheck Protection Program payments during the pandemic in collaboration with Paychex.

The major selling point for banks is the immediate clearing of bill payments that the integration brings, said Talie Baker, senior analyst for Aite Group.

"It does open the possibility for more use cases, like bill paying," Baker said. "This is a huge thing for banks because it has the possibility to bring bill pay back to the banks, rather than consumers going directly to a biller's website to make a payment."

Consumers generally go to a biller website to pay a bill because they know they can wait until the last day the payment is due, Baker added.

"Even though the biller doesn't have the money yet, it is credited in real time," she said. "This integration for Zelle and RTP hopefully will bring consumers back to banker bill pay."

A lot of work went into the integration process during 2020 to establish an infrastructure for both Zelle and RTP to co-exist, said Steve Ledford, senior vice president of product strategy and development at The Clearing House.

"We will see a lot of activity over the next two months with these services and see a tighter integration between Zelle and RTP, as more bills are paid through the RTP request-for-pay option, and other services that will come to market in the future."

Ledford doesn't foresee the integration suddenly enabling retail faster payments. "There are a lot of pieces that go into e-commerce and retail payments, and we are taking this one step at a time right now, working on integrating Zelle and RTP for P2P, B2C and bill payments," he said. "It is a lot of work going on now to get those things in place."

As such, TCH and Zelle are expecting banks to provide feedback on the best way to add consumer-facing elements.

"This is a great example of technology advancing the way we — and our clients — do business," Chris Ward, executive vice president and head of product and operations for PNC treasury management, said in a press release. "Combining the speed of Zelle and the RTP network will create new powerful opportunities for companies to seamlessly and efficiently interact with consumers and small businesses."

Though consumers may not notice any significant changes in the Zelle process, there will be benefits in money management from full transparency and control of digital payments. The process will provide immediate information about account balances and real-time payment confirmations.

“This effort continues to advance the speed, security, and efficiency of payments for consumers,” Mark Monaco, head of enterprise payments at Bank of America, said in the release. “The powerful combination of Zelle along with the robust messaging and settlement capabilities of the RTP network will help consumers better manage their money and reduce the potential for late payments by giving them more control over the timing of payments and the immediate confirmation of receipt."