The bank-backed Zelle is catching up to millennial favorite Venmo in the peer-to-peer payment app wars
“Zelle me” is giving “Venmo me” a run for its money.
Both mobile payment services allow users to send or receive money to other users with just a few taps on their phones — and without the hassle of writing a check or withdrawing cash from a bank or ATM. But while Venmo has been the dominant peer-to-peer (P2P) payment app for the past few years, the bank-backed Zelle is closing in fast.
The PayPal-owned Venmo is a third-party app that serves as a middleman between banks — so you and the person you are exchanging money with will both need to download the app, link it to your checking accounts, and then remember to transfer the money electronically from your bank to your Venmo account (and vice versa). And it takes a couple of business days for that money to move between accounts, unless you pay a 25-cent fee for instant transfers.
But Zelle operates directly through bank and credit union apps, so the cash moves from one checking account to another in a matter of minutes for no extra charge, and without downloading another app if they can use Zelle through their bank’s app. For those banking with financial institutions outside of the network, a Zelle app is available in the Apple App Store and Google Play.
The use of P2P payment apps — which include Venmo, Paypal, Square Cash and Zelle — is expected to grow by double digits across all age groups through 2021, with P2P transactions exceeding $120 billion last year. Now a new eMarketer report predicts that Zelle users will overtake Venmo users by the end of the year, with Zelle growing by more than 73% to reach 27.4 million U.S. users — almost 5 million more people than Venmo’s 22.9 million. It counted 17.3 million Venmo users last year, compared to 15.8 million Zelle users. Zelle reported $25 billion in person-to-person payments in the first quarter of 2018, up 15% quarter-over-quarter.
And it’s done that by working directly with a network of 30 U.S. banks, including Bank of America, Chase and Capital One. A Zelle rep told Moneyish that the service will expand to 100 banks by the end of the year. “One of the main hurdles new apps face is building trust and a sizable audience,” eMarketer forecasting analyst Cindy Liu wrote in her report. “But Zelle has leapfrogged the early stages of adoption by having the benefit of being embedded into the already existing apps of participating banks.”
— Zelle (@Zelle) May 15, 2018
That’s how Zelle snagged Elizabeth Penders, 27, a customer service rep from Huntington, Long Island. She and her roommates all use Bank of America, so they were already transferring rent and utilities payments to each other directly using the bank’s app.
“I only use Zelle now because Bank of America built it into their app,” she said, noting that her roommates shoot over about $800 apiece each month to cover their share of the rent, or she’ll use it to cover the $50 or $75 she might owe for dining out.
“I’ve never even had the Venmo app,” she told Moneyish.
Amanda Hernandez, a 27-year-old mother from Teaneck, N.J., uses both apps: Zelle with her family, such as when she goes out to eat with her mother, and Venmo with coworkers when they split lunch orders or go out for drinks. But she’s also leaning more toward Zelle.
“Zelle is definitely way better to me, because now with all these banks partnering with Zelle, almost everyone has it without having to download an extra app; it’s already in your bank app, so it just makes things much easier,” she told Moneyish. “Also, it transfers money to people the same day for free — unlike Venmo that you need to wait a day or two for the funds to come in.”
And while Venmo has long targeted millennials, Ravi Loganathan, head of research at Zelle, told Moneyish that Zelle is appealing to consumers across all age groups. “The financial institutions themselves are offering Zelle, and it is going across generations — not just millennials, but Gen Xers and Boomers,” he said. “And the mobile banking apps are also doing a great job educating consumers on this additional tool [Zelle] that is available to them.”
Venmo, launched in 2009, won over millennials with its playful approach to payments. It encourages social interaction in transactions by requiring users to include brief messages explaining what a payment is for, which can be illustrated with emoji. This payment history is logged in a newsfeed that can be public, shared with just friends, or kept private between the recipients — so you can see that your sister and her friends got tacos on Tuesday, or others can see that you and your BFF are catching “Ocean’s 8.”
“What sets Venmo apart is its social feed,” Bill Ready, COO of Venmo’s parent company PayPal, told Moneyish. “Thirty percent of all Venmo payments use emojis, and that number is growing. Our most active users check Venmo daily, and the average user checks Venmo two to three times per week. Venmo continues to transform how people manage and engage with their money.”
Zelle got off to a slow start when it rolled out last summer; a LendEDU survey a month after it launched found only 6.1% of respondents had ever heard of Zelle, and most (63%) said they would not try it. But what a difference nine months makes: A follow-up report released Tuesday found that 29% of respondents have now heard of Zelle, and only 29% would refuse to try it.
Plenty of people still love Venmo, however, and it remains the most familiar and most-used P2P mobile payment app. And Venmo has expanded its features to include being able to automatically split Seamless, Grubhub and Eat24 orders with friends and family when you get takeout. You can also now shop using Venmo at more than two million U.S. retailers, including Poshmark, Lululemon and Forever 21.
Caroline Bottger, 28, from Jersey City, N.J. is sticking with Venmo, which she has been using once or twice a week for the past couple of years to pay friends back for coffee or drinks. The transactions are usually less than $25 apiece.
“I use Venmo, even though Bank of America (my bank) rolled out Zelle a few months ago,” she told Moneyish. “Honestly I don’t know much about Zelle, and Venmo just got there first for me. I feel like I’m already covered when it comes to payment apps. I can’t see what else Zelle can offer me to make me switch.”
Brett David, 38, from Manhattan has been using Venmo every day for the past two years — specifically because it stays out of his checking account, he told Moneyish.
“I have a habit of burning through my checking. So I keep [Venmo] like a separate savings account,” he said, explaining that he mostly uses Venmo for selling t-shirts that he customizes and resells on his Instagram page. “I currently have over $2K in my Venmo, and only transfer it when I need to make a big purchase.”
Plus, most of his friends are still on Venmo. “I’ve seen far more people say they use Venmo than Zelle, so for now, it’s what I’ll keep using,” he added.
Many users will likely continue to use both, as Hernandez is doing, so that they can exchange money with people using both apps. Venmo is generally used for smaller transactions averaging around $60, while Zelle’s average payment size is $300. LendEDU’s latest report also noted that 50% of those who use both Venmo and Zelle say they are satisfied with both services.
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