Venmo Competitor Zelle Wants to Let You Pay Businesses, Too

(Bloomberg) -- Zelle, a Venmo-style app that lets consumers send money to friends, roommates and babysitters, is working on ways to ensure that customers can safely pay small businesses as well, according to people familiar with the situation.

Zelle, backed by Bank of America Corp., JPMorgan Chase & Co. and other banks, is beefing up its risk-assessment tools as part of the effort, according to one of the people, who asked not to be identified because the feature hasn’t been announced. The idea is to help protect users when they’re paying businesses like gardeners and hairdressers.

There’s no set date for the release and plans could still change, but the move could potentially step up competition with the likes of PayPal Holdings Inc.’s Venmo, which already lets users pay businesses. The so-called peer-to-peer payment industry has gotten more crowded as Americans -- from millennials to baby boomers -- get comfortable using their mobile phones to make purchases.

In the past, P2P apps were only used to split restaurant bills or make rent payments between friends. But that’s changing fast. This year, the total purchase value of P2P payments to U.S. businesses will nearly quadruple, reaching almost $17 billion, according to research firm Crone Consulting LLC. By 2021, the business portion will reach $74 billion, Crone estimates. That would be 23 percent of the entire P2P purchase volume, up from 9 percent this year.

‘Pay With Venmo’

Venmo, the early market leader, began allowing people to send payments to millions of online merchants last fall. That same year, it introduced the “Pay with Venmo” option, which lets it charge retailers a transaction fee. In more recent months, merchants like Abercrombie & Fitch Co. have signed up to use the functionality.

Ride-hailing company Uber Technologies Inc. also now lets riders pay with Venmo. And the app even offers a physical debit card that can be used to pay businesses.

In the quarter ended June 30, Venmo processed $14.2 billion in payments, up 78 percent year over year, according to PayPal. The net number of new active users also hit an all-time record, the company said.

Defraying Costs

Working with businesses is key to the long-term success of payment apps, said Richard Crone, head of Crone Consulting. Merchants help pay for payment processing, and they can shell out additional money to run promotions within the apps.

“Merchant acceptance is the path to profitability for P2P,” he said.

Zelle already lets businesses such as associations disburse payments to consumers. In the second quarter, Zelle’s network handled 100 million transactions for a total of $28 billion. Twenty-nine financial institutions use Zelle, with another 119 under contract, according to Early Warning Services LLC, the technology provider that’s developing the app.

For now, Zelle doesn’t offer the risk protections needed to send money to businesses. That’s why it’s only intended for paying people that customers trust. Zelle also has no plans to develop a solution to be used at point-of-sale registers in stores

Early Warning declined to discuss plans for a P2P feature, saying it doesn’t have “anything else on the docket that we can share.”

“We continue to research future use cases, but do not comment on our road map,” the company said.

©2018 Bloomberg L.P.