Unpopular opinion - Credit Unions should not promote Zelle

Primarily as a vent and REEEEALLY inside baseball

Providing simple methods of money movement is table stakes for a financial institution, a minimum product or service level to remain competitive. That said… not all money movement methods are the same, and Zelle should NOT be promoted.

The Big Banks that created and run Zelle have marketed their service so well that potential members might consider not having Zelle as enough of an issue to avoid opening an account. For that reason alone, I am not saying don’t have the service. I am saying do not spend a single penny of limited campaign and promotion dollars to increase usage or adoption. Remove the banner ads. Put links to Zelle in tiny print, down at the bottom of the page.

I feel this way for a simple reason: Zelle does not align with the credit union philosophy. It costs a lot, provides nothing to further the credit union mission, and weakens the partner networks and platforms whose continued success support our own. Unlike most peer-to-peer payment systems, Zelle charges fees entirely misaligned with the value received and uses a model that bypasses revenue-sharing.

Any home banking platform or core transaction system will provide cost-free methods for transferring money within the accounts of a single member, or between members. Outside the credit union’s perimeter, almost all money transfer systems utilize either direct deposit (slower) or the debit card networks (immediate). Those are free or low-cost to the institution and might even generate revenue.

Zelle, however, uses a private network created by seven Big Banks to provide a method for its creators to transfer money between each other without having to share revenue in support of the ATM/Debit or MasterCard/VISA networks. Once developed, they started marketing the network to additional institutions, creating a revenue generator out of their internal cost savings platform. Credit Unions have to pay separately for the network, providing profits to the large banks that work in Washington to put us out of business.

Further, most credit unions are too small to participate directly with Zelle and instead work through partner bundlers. Those bundlers charge what the market will bare, rather than minimized price as credit union service organizations (CUSOs) might. Also, participation requires providing the partner or Zelle at least minimal information about the entire membership, not just registered users. This is done to facilitate faster data validation and account registration, but it also increases the potential risk in a data breach.

More to the point, this is not a service for high deposit members. This service, like all peer-to-peer money movement services, is utilized primarily by low deposit members sharing costs and for low dollar amounts. We provide the services and products our members want and we manage the costs as best we can. There is, however, a point at which we have to realize not all products are in the best long term interest of our institutions and our member owners.

FIN

Noodling on the cost: the generic model is credit unions pay a Zelle partner an annual fee for access; daily and monthly fees for portfolio maintenance; and per transaction fees for any movement of money. The true cost of a Zelle transfer is the per transaction fee plus the total maintenance and access fees averaged by the number of transfers.

Consider a credit union with 50,000 members that does 200,000 Zelle transfers per year, and pays $1.25 per transfer (a number cheaper than using some ATM networks). For estimates, assume daily maintenance file fees are $200 for each non-holiday weekday (roughly 260 days), monthly maintenance fees of $1500, and annual participation fees of $15,000.

• (260 × $200) + (12 × $1,500) + ($15,000) = $85,000

• ($85,000 / 200,000) + $1.25 = $1.675 = $1.68

For most credit unions, a true cost of even a dollar would be considered low cost, since ATM and Debit card networks are below that and might provide revenue sharing. For the chance to transfer any amount (even less than a dollar) to a Bank of America customer, the credit unions will pay $1.68.