How do you pay a friend? That question has changed quite a bit over the past 20 years: moving from an answer of “cash” or “check” (or maybe a promised beer) to, frequently today, a mobile app. New data from Narmi shows a surprising contrast to the press releases from major players.
Over the past decade, options outside of the banking industry such as Venmo, Square Cash, and Paypal emerged to pull these payments into the digital world. Even more recently, social and large technology companies like Facebook, Google, Apple and WeChat jumped into the fray to offer payments as part of integrated ecosystems. This competition puts the choice of payment in the consumer’s hands and has introduced immense convenience.
As a response to the encroachment on what the banking industry considers a crucial point of engagement with their customers, the largest financial institutions officially launched their response in waves through 2017. Zelle is a standalone app, but also integrated directly into the online and mobile platforms of major financial institutions. The technology behind Zelle has been through several twists and turns, but its current owners have issued multiple press releases about “surging” growth: processing $17.5 billion transactions in Q3 2017, compared to only $9 billion for Venmo.
An interesting aspect of these apps is that they are all largely closed platforms where the company behind it sets the rules of engagement and interaction. Some are more open than others - for example, while Venmo did publish an API back in 2014, it restricted access in 2016 and removed its documentation entirely in 2017. Others such as Square have preferred to join platforms piecemeal, for example, as they did by integrating Square Cash into Apple’s iMessage app.
Analysis based on Narmi’s data and publicly available metrics indicates that peer-to-peer (P2P) payments are dominated by a single player - Venmo. As a technology service provider to financial institutions themselves, Narmi has a window into the world of money as it moves between accounts. Looking at our proprietary dataset of transactions of primarily millennial consumers, in the last three months of 2017, 8.8% of their transactions could be categorized as P2P. Of these transactions, 68% were specifically Venmo and another 26.7% were related to Paypal, with the rest distributed among other services. Surprisingly, Venmo accounted for 6% of all transactions in this dataset.
These numbers are dramatically different from the published comparisons of Venmo vs. Zelle. There are several reasons why Narmi’s data shows Venmo to be used over 150 times as much as Zelle, while published accounts indicate that Venmo processes half the value of Zelle. First, it should be noted that we looked at the number of transactions rather than their value. Venmo users tend to make more frequent small transactions than Zelle users who prefer to make larger, occasional transactions: the median Venmo transaction was $23 while for Zelle it was $100. Our data also does not reflect transactions occurring within the payment applications - for example, these numbers don’t reflect a payment from one Zelle user to another. Zelle may report such high numbers because the majority of its transaction are Zelle to Zelle and thus never leave its “walled garden” and don’t show up in Narmi’s data. Another possibility is that Venmo has a stronghold on the millenial population while Zelle’s success is in other demographics - so we just don’t see the transactions in this data.
However, these explanations are hard to square against the magnitude of the difference - they may explain part or some of the comparison, but not the overall picture this data paints. A more likely explanation is that ClearXchange, the network underlying Zelle, has been used by the larger banks since 2011 and the larger transaction amounts simply reflect bank using the network for purposes other than what would typically be termed a P2P payment.
The usage of mobile apps released by these companies tells a similar story to the Narmi data. Venmo’s most recent version of its app for Apple products was rated over 780 times more than Zelle’s app (and it received almost a 50% better rating). Although Zelle is integrated into the mobile and web applications of major banks and it’s app is younger than Venmo, this standalone product data reinforces Venmo’s strength.
Over the long term, Venmo’s ability to maintain its lead will depend on a variety of factors. Consumers will choose an app based on how easy it is to use and price, but ease of use includes not only the design and functionality of the app but how many of their friends also use the app. These network effects are a high hurdle for Zelle to overcome among the rising generation of spenders. Given Venmo’s uptake among the young, as long as Paypal invests in the product to keep it relevant and avoids the regulators’ wrath, it will stay the player to beat in the P2P space.