How IBM Is Helping Smaller FIs Get on the Zelle Train

EXCLUSIVE – In 2017, the U.S. payments landscape underwent significant change. One of the most important ingredients for this change was the arrival of banks-backed P2P app Zelle.

The app, created as collective effort by seven major U.S. banks to provide users an alternative to payment apps like PayPal and Venmo, has so far gathered an impressive number of banks on its network. (Here’s the full list).

Still, there are many smaller and midsized banks that need to get on Zelle’s network. That’s where multinational technology company IBM comes in.

A few weeks ago, New York-based IBM made public its 18-month old partnership with the bank-backed P2P app Zelle. The major purpose of this partnership to enable more Financial Institutions (FIs)/banks to connect to Zelle’s payments network.

The task is not an easy one. For one, the onboarding process requires banks to make major changes to their existing legacy infrastructure.

The biggest challenge with this, particularly with smaller banks, according to IBM’s Director of Worldwide Payments Solutions Sales Rajesh Venkatraman, is justifying the cost of restructuring those older systems.

The issue, he said, is that there is no immediate ROI for the bank to provide this capability to customers.

But the costs don’t end at just changing the payments system, he said. The bank needs to make sure they can provide these P2P capabilities in “the right way, all day every day in the most efficient and secure way because that payment transaction is irrevocable,” he said. So, it requires the rest of the banks’ operations to function just as fast as the payments system.

“For instance, faster payments, means faster fraud detection,” he said.

For smaller banks, the issue is more magnified because of their limited resources in terms of budget as well as scale.

And yet, despite these challenges, Zelle is a crucial survival measure for many banks, even the smaller ones.

“The world is moving past legacy and other older methods; and modernizing at a quick speed,” Venkatraman told Bank Innovation last week “In the world of instant gratification, it’s almost a given that money movement needs to be as near instantaneous as possible. With the technologies out there, it is becoming very acceptable to send money over a mobile device through a messenger service, so such payment technologies are something that financial institutions and banks require to keep up with the world around them.”

Speaking of payment through messenger services, social media platform Facebook has been actively adding p2p capabilities to its chat system aka Facebook Messenger.

These P2P features in nonpayment companies is bound to impact Zelle and the rest of the payments landscape. What that impact will be is too early to tell, Venkatraman said.

But Zelle is well equipped to adapt to that landscape, he said. In fact, Venkatraman believes, Zelle has a great competitive advantage because it is backed by banks, who have access to a user’s financials and spending habits. This means, Zelle can provide many user benefits in the form of cashback, rewards, and contexts.

Currently IBM is working with a roster of banks to get them onto Zelle. Venkatraman declined to disclose names.

To learn more about the latest developments in P2P payments and mobile banking, join us on March 5-6, 2018 at the Parc 55 in San Francisco for Bank Innovation 2018. Click here to request an invitation.

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