The Bottom Line

Venmo v. Zelle: Who’s Winning the P2P War? And Who Cares?

Posted by Ginger Schmeltzer on May 12, 2019 9:00:00 AM

Venmo v. Zelle: Who’s Winning the P2P War? And Who Cares?

One of the most closely watched contests in consumer banking is the battle for P2P supremacy between Zelle and Venmo. Zelle is touted as the bank-friendly alternative, owing to its status as an offering of Early Warning, itself owned by a consortium of the largest U.S. banks. Zelle has reported eye-popping growth figures, stemming from the embrace by its market-leading owner banks and surpassing Venmo volumes by most measures.

Venmo, on the other hand, remains the app of choice for the coveted Millennial and Generation Z cohorts. Zelle has yet to attain the “verb” status of its rival (“I’ll Venmo you…”), which has managed to hold onto its cachet as few consumers realize Venmo is now owned by the not-as-cool-as-it-once-was PayPal.

In my view, however, asking, “Which one will win?” largely misses the point. Zelle v. Venmo is not a cage match from which a single gladiator will emerge. More importantly, it may be a mere sideshow diverting attention from more fundamental changes roiling the payments space.

“I Just Want to Pay Somebody”

A look at average transaction values provides insight into the different ways these products are being used. Zelle has established a niche in account-to-account transfers – parents moving money to children, for instance – which helps to explain its far higher average payment sizes. Many in the know have pointed out that Zelle often tends to function as a bill payment vehicle (for babysitters, gardeners, etc.) rather than as a “pure” P2P solution, another explanation for its larger ticket sizes.

This is neither a good nor a bad thing, it simply implies differences in use cases. I doubt I’m alone in my approach of housing multiple apps on my phone and paying however my counterpart wants to be paid. Depending on the payee, this can mean Venmo, Zelle, Square Cash or (the sole option in the case of my kids’ school) PayPal – which still beats writing a check. 

In this sense, the market is developing in a fashion reminiscent of online bill payment. Although conventional wisdom dictated that the aggregator model – collecting all of a consumer’s bills at a single (presumably bank) site – would prevail, many consumers proved perfectly comfortable with the biller direct model and the visits to individual websites it requires.

Perhaps the most important thing to remember is that the layperson doesn’t care about insider terms like P2P. The average consumer simply wants to pay someone or get paid. And just as merchants decide which payment types to accept and customers have to adapt, so do P2P payees decide how they want to get paid and ask P2P payers to pay accordingly.

Winner Take All? Most? Some?

We currently have an embarrassment of riches in payment options. Whether that’s a positive is open to debate; it leaves customers with a lot to think about, merchants with a lot to manage, and financial institutions supporting a lot of (sometimes thinly used) infrastructure.

If you’re waiting for a single winner to emerge, don’t hold your breath. Consider this parallel: did Visa or Mastercard win the credit card battle? Even if a solution like Apple Pay takes off – as many have been anticipating for years – it will cover only one-third of U.S. consumers. Better questions to ask are, “How many players will survive?” and then, “Will niche use cases take hold?”

The Bottom Line: The biggest question to financial services providers might be that as the form of payment fades into the background rather than standing out as a discrete decision point, how can banks and credit unions continue to deliver a visible value add for customers? P2P is expensive and complex, but financial institutions need to stay in the equation; their job is to figure how to reliably and securely support their customers’ payment choices, even as the list of options continues to evolve.

For more on this topic, read Ginger’s previous blog, Digital Walk to Starbucks: Mobile Banking & Payments Change Everything.

Topics: P2P, Venmo, Zelle, Payments