Introduction to Zelle

When it comes to sending money in the United States there certainly is not a shortage of options available to consumers, and the list seems to get longer every week. The traditional methods of sending money within the country – sending a check or wire transfer or conducting a transfer via the automated clearing house (ACH) – have faced competition from the rise of several popular applications including: PayPal, Venmo (now owned by PayPal), Cash App, Apple Pay and Google Pay – and these are just a tiny fraction of the available options. But the payments world was hit by storm in 2017 when Zelle, a new application for person to person (P2P) payments, was officially launched in the United States. In its first year the Zelle Network facilitated the transferring of $75 billion, representing 247 million payments. In the following sections we provide a history of Zelle, how it works, information about which financial institutions have Zelle available and much more.

 

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Brief History of Zelle

Zelle was founded in 2011 and was initially known as the clearXchange. It was created by three of the largest banks in the United States: Bank of America, JPMorgan Chase and Wells Fargo, who also served as the owners and operators of the service. The banks aspiration was to create a service that allowed their customers to transfer money electronically without using an external service such as PayPal, which at the time was the dominant provider of P2P payments. The immediate benefit of such a service stemmed from the fact that consumers did not have to create a new account, all they had to do was login to their bank accounts to begin using the payment service. Originally, the service was limited to customers of the three founding banks, but expanded to include other banks and credit unions between 2011 and 2015.

In 2016 ownership of clearXchange was modified with its sale to Early Warning Services, which is it’s current owner. Early Warning Services is owned by Bank of America, JPMorgan Chase, Wells Fargo, Capital One, Truist Bank, PNC Bank and U.S. Bank. After the sale the company stopped offering P2P payments and reorganized its business, relaunching in 2017 with the Zelle payment system and mobile application.

Timeline of Zelle Since It’s Launch in 2017

history-of-zelle

Since its launch, the usage of Zelle and the Zelle Network has grown very substantially. Originally at its launch, there were 30 participating financial institutions, but that figure has now grown to over 1,000. In addition, the total value of payments facilitated by the Zelle Network has grown every year since its launch and in 2021 approached the half a trillion dollar mark:

zelle-network-volumes

One of the many fascinating facts about Zelle is how quickly it has gotten adopted by consumers, which we believe is at least in part a result of two factors:

  1. Ease of use: the vast majority of users do not need to register for a new account to send and receive payments on Zelle. Customers of participating banks already have their accounts linked which enables a very seamless transition to usage.
  2. Cost: Zelle remains totally free to use for essentially all consumers.

How Does Zelle Work?

From a consumer’s point of view, all that’s required to start using Zelle is to first confirm that your bank, credit union, or other financial institution offers Zelle (you can do this by checking the list on this page). Once you’ve confirmed that your bank account provider offers Zelle, then you log into your account and enroll in Zelle by entering your e-mail and phone number. To send money you just have to choose Zelle from the transfer options and enter recipient information (e-mail, phone number). If the recipient has an account with an institution that partners with Zelle, they will receive the money that is sent within minutes. Behind the scenes, Zelle works by using the fact that thousands of banks, credit unions and financial institutions are connected to the Zelle network. As mentioned earlier, users don’t have to register or commence a new sign-up flow to start using Zelle because for participating financial institutions, Zelle is already integrated. This is why when two Zelle users want to send money to each other it happens very quickly (within minutes per the company): the accounts of the two users are directly connected via the Zelle network, there’s no third party or middleman.

Which Banks and Credit Unions Offer Zelle?

Most of the largest banks in the United States partner with Zelle but there are several notable banks that still are not part of the Zelle Network. With credit unions participation is a lot lower than banks and by our estimation only half of the largest credit unions in country are currently partners with Zelle. This is a list of banks and credit unions that currently do not offer Zelle services to their customers and members:

As a reminder, while it is certainly less convenient if your bank or credit union is not a member of the Zelle network, you can still use Zelle. In fact, if you download the Zelle mobile app and sign up for the service, all you have to enter is your debit card details and you can receive money transfers through Zelle and have the funds available in minutes. Visit these pages to view a list of banks that offer Zelle and a list of credit unions that offer Zelle.

Zelle vs. Venmo

The major differences between Zelle and Venmo are convenience, cost and speed. For the most basic of transfers, sending money from one person to another, both Zelle and Venmo will provide this for no charge and process the transfers immediately, meaning if the recipient is a Zelle or Venmo customer, they will receive the transferred funds almost immediately. However there is a big difference between the two services when it comes to how quickly you can get the transferred funds into your bank account.

zelle-vs-venmo

To illustrate this the above diagram shows a straight forward transaction between two people: Person A and Person B. Person A wants to send $100 to Person B. In the first instance both Person A and Person B have bank accounts with banks that provide Zelle. So Person A is able to log into his bank account and send $100 via the Zelle network to Person B – this transaction has no cost to either party and is completed within minutes i.e. after a few minutes Person B has the funds in their bank account. On the right hand side we have the same transaction except Person A and Person B are both Venmo users. Person A sends the $100 via the Venmo app. Person B gets a notification that they have received $100 from Person A and the funds are now available in their Venmo account. However Person B wants the funds in their bank account and so they initiate a transfer from their Venmo account to their bank account. This transaction also has no cost to either party, however while the transfer from Person A to Person B is completed within minutes, Person B has to wait 1-3 business days before the funds will be deposited into their bank account.

If Venmo users want to have access to funds sooner than 1-3 business days, then they can use a Venmo service called “instant transfers” which will transfer funds within 30 minutes. Venmo charges its users a 1.5% fee (minimum of $0.25 and maximum of $15) for this service, and so in the example above Person B would have to pay Venmo $1.50 if they wanted to have access to their funds sooner than 1-3 business days. Zelle is clearly more convenient for this reason. You can view our Venmo FAQ page to learn more about the payment service.

What are Zelle Limits For Transfers?

On average banks limit the total amount you can transfer using Zelle per day to $1,000-2,000. However there is a lot of variation in limits depending on which bank you use and the type of bank account you have. As a matter of fact, several banks including Wells Fargo, Regions bank, U.S. Bank, BMO Harris Bank and M&T Bank will vary the limits based on customer specific factors. Below is a summary of the Zelle limits at several of the major banks in the U.S.:

zelle-limits-major-banks

As should be evident from the table, there is a lot of variation in Zelle limits by bank and even among different bank account types. Being a Private Client customer of Chase Bank will allow you to have a Zelle limit of $5,000 per day and $40,000 per month, which is the highest we found during our research. But generally speaking the daily limit seems to be $1,000-2,000 in most cases while the monthly Zelle limits for standard accounts is in the $5,000 to $10,000 range. Importantly, these limits apply to sending money over Zelle, not receiving. In addition, some banks also have a transaction limits for Zelle. For example, Bank of America customers have the following Zelle limits for sending transactions as of this writing:

  • Every 24 hours: 10 transactions
  • Every 7 Days: 30 transactions
  • Every Month: 60 transactions

Finally, if your bank or credit union does not offer Zelle, then your default weekly limit on sending funds using Zelle is $500.

How does Zelle Make Money?

Prior to becoming Zelle, when the entity was known as clearXchange, the business consisted of participating banks being charged for using the payment network. These banks then had to decide whether to charge customers for using Zelle or offer it for free. However as the ownership of Zelle’s parent company has broadened now to include several large banks, our understanding is that Zelle isn’t operated for profit. The reason why this makes sense is two fold. First, banks that participate in the network benefit from other banks joining the network since it increases the number of consumers they can facilitate payments to quickly and cost effectively. Second, it is cheaper than the alternative. Bank of America for example has disclosed that usage of Zelle by its customers has resulted in a reduction of the number of checks they need to process each year, which overall saves them money. In short, we don’t believe Zelle makes money and instead think its owners and partners have a strong incentive to fund the operating cost of Zelle.

Zelle Scams and How to Avoid Them

The downside to having a service that can transfer money within minutes is that it becomes very difficult to detect and prevent fraud. There have been seemingly endless reports on fraud utilizing the Zelle Network. The increase in google searches for “Zelle Scam” over the past year helps illustrates this point perfectly.

zelle-scams-search-interest

The fraud comes in many varieties including:

  • Me-to-Me Scams: this is perhaps the most outrageous (and clever) of the Zelle scams which the New York Times has covered in detail. With this scam, fraudsters take advantage of the fact that registering for Zelle is possible with just a phone number. The fraudster uses your phone number to register for Zelle which is linked to their bank account. Then they impersonate your bank and call you claiming that someone is attempting to withdraw funds from your account, and that you need to send a certain amount of money to yourself using your phone number in order to block the transaction. Of course, by sending the money using your phone number, the funds get directed to the fraudsters bank account.
  • Phishing E-mails: another popular Zelle scam is to send e-mails that look like they are from Zelle with instructions for you to enter your information. However, doing this just provides fraudsters with the information they need to access your account and initiate transfers to themselves. There is a growing number of consumers falling victim to these types of scams and it can be very costly. CBS reported one particularly scary case where a man noticed transfers he never authorized occurring from his account and despite calls to Chase Bank, was unable to prevent the transactions from occurring. After a few days this individual had lost $5,000 and by the time it was all said and done his losses totaled $9,000. Because the transactions were coming from the individual’s accounts, the bank disputed his fraud claim.
  • Hacked or Stolen Devices: if you lose your phone or have your online banking login credentials compromised, you are especially vulnerable with Zelle because of how quickly the transactions get processed. Unlike other slower methods of transferring money, with Zelle often times once you’ve realized that a fraudulent transfer has occurred, it is too late to cancel or reverse the transaction.

Being aware of these scams and up to date on the various ways fraudsters are attempting to defraud consumers is the first step to protecting yourself. The second step is ensuring that your information is appropriately safe guarded and that you are suspicious about giving your information to anyone online or entering it into any e-mail prompt. Finally, it is good practice to set up two factor authentication as well as account alerts on your bank accounts.