The New Payments Battleground: Lessons From Implementing Zelle

Person-to-person payments is the front line for banking providers in the fintech arms race. Financial institutions must adopt this new offering quickly or concede yet another strategic product to rising fintech startups. Here's what FirstBank learned in their first year with Zelle.

Banking requires strong risk management skills, which is why many executives in the financial industry often hedge when it comes to change. This often results in the slow adoption of new technologies. Too often banking providers wait — sometimes until it’s too late — to see if a novel approach works before they jump in.

But this conservative nature could become a big Achilles’ heel in a growing fintech marketplace. In this IT arms race, person-to-person (P2P) payments are the latest battlefield. To be successful, banking executives may need to move more quickly than they may find comfortable — or risk seeing yet another piece of the pie swept away by more innovative and nimble players.

There are certainly plenty of examples of this type of disruption outside the banking industry: music streaming services like Pandora, Spotify and Apple are putting radio stations out of business. Going to Blockbuster to rent a video instead of streaming the latest film on Netflix seems as archaic as waiting days to get those “Kodak moments” from your kid’s birthday party back from the film developer. To make sure banking avoids the same fate, the industry must adapt.

This is precisely why FirstBank started offering P2P capabilities in 2014, and in 2017, gravitated to Zelle, a fast, safe and easy way to send and receive money electronically within minutes to almost anyone with a bank account in the U.S.

Several years ago, we noticed most of FirstBank’s Millennial customers (our fastest growing segment) were active Venmo users and also preferred banking from a handheld device. We knew they were seeking the convenience of P2P, mobile account access and the security of working with a banking provider they trust. For us, offering P2P was a no-brainer. Our subsequent launch of Zelle was an instant success, with our P2P transactions nearly doubling to over one million transactions and volume totaling $338 million in our first year (2017).

Developed by Early Warning Services, Zelle has helped us serve consumers better, but integrating the service hasn’t been without its challenges. Here are the lessons we learned in the first year implementing Zelle that could serve as guideposts for other financial institutions venturing into the P2P arena.

Fraud Protection Must Match Ubiquity and Speed

With P2P, four things are paramount: ease of use, speed, fraud protection, and broad access for consumers.

As of July 2018, 29 financial institutions are live on the Zelle network, with an additional 119 under contract. This represents 56% of the retail checking account market in the U.S. Last year $75 billion moved through the Zelle Network, making it a widely used option for consumers.

Along with ubiquity, speed is also critical. But “speed” could translate into greater risks for consumers and financial institutions alike if fraud protections are not properly managed. Simply put, real-time payments also require real-time fraud detection. We realized that adding faster services meant we would need to do more to keep people (and ourselves) protected. In order to accomplish that, FirstBank used new and greater amounts of data to re-engineer our fraud protection and mitigation efforts.

The initial use case for P2P was to make it easy for people to send funds to friends and family. Consumers like the certainty of paying someone directly by sending money from their account to the recipient’s account in real time. With Zelle, payments are pushed from the customer’s account to the recipient within minutes. So if a customer pays for concert tickets from a Craigslist ad, for example, and the tickets are never delivered, we’re limited in our ability to stop the payment.

This is why it’s essential to educate consumers about the risks to prevent them from falling victim to fraud or misdirected payments and encourage them to only send payments to people they know and trust. This is one of the reasons FirstBank implemented disclosures when a transaction is initiated, along with confirmation messages to ensure consumers understand the risks and know where their funds are going.

Prepare to Launch: Essential Tech and Getting All Employees on Board

Launching and integrating Zelle into our core offerings required a significant amount of work. It wasn’t as simple as adding a new app to our digital banking lineup. In fact, the implementation of Zelle required five software delivery teams. We also needed to train our customer service teams to handle disputes, set up new reconciliation processes, expand fraud detection teams and allocate IT resources for future enhancements to the Zelle service.

Equally as important as the technical implementation and training, is also an investment in marketing efforts to help drive adoption. One thing many companies often miss is the employee engagement aspect of promoting a new service or offer. We decided to not only leverage online and mobile advertising, but to tap our entire workforce to build buzz. We hosted company-wide Zelle-themed events to get employees onboard and excited about the launch. Everyone from tellers to executives donned purple branded shirts and offered customers Zelle-branded treats and refreshments, enabling more conversations, awareness and ultimately, customer enrollments in the new service.

Big Opportunity Beyond P2P

Right now, FirstBank customers are using Zelle for everything from splitting utility bills with roommates to sharing the cost of a meal or paying their babysitter. The future will undoubtedly bring greater capabilities to P2P. Consumers could make donations to their favorite cause, or insurance companies could award claims directly to their policy holders. The opportunities ahead for direct payment between individuals are vast. But that future can only be realized if banking leaders surrender their slow-moving tendencies in exchange for greater agility.

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