Is Zelle a bank, or is it more accurate to describe it as a payment network or platform that integrates with existing bank accounts? If it’s not a bank, what is the regulatory framework governing its operations? Also, how does Zelle differ from other payment services like Venmo or Cash App in terms of its relationship with banks and its potential consumer protections?

Answer

No, Zelle is not a bank. It is a digital payment network.

Here’s a more detailed explanation:

• Zelle’s Function: Zelle facilitates direct bank-to-bank money transfers between users in the United States. It’s designed for sending money to people you know and trust.

• Operated by Early Warning Services, LLC: Zelle is owned and operated by Early Warning Services, LLC, a financial services company. Early Warning Services is, in turn, owned by a consortium of major U.S. banks.

• Partners with Banks and Credit Unions: Zelle doesn’t hold accounts itself. Instead, it partners with banks and credit unions, allowing their customers to send and receive money directly through their existing bank accounts.

• Integration with Banking Apps: Many banks and credit unions integrate Zelle directly into their mobile banking apps. This allows customers to access Zelle’s features without needing to download a separate Zelle app (although a standalone Zelle app is also available).

• No FDIC Insurance: Since Zelle isn’t a bank and doesn’t hold deposits, funds sent through Zelle are generally not FDIC insured. FDIC insurance covers deposits held in banks, protecting customers against the loss of their insured deposits if a bank fails.

• Transaction Processing: Zelle provides the technology and infrastructure for processing these transactions. When a user sends money through Zelle, the funds are transferred directly from their bank account to the recipient’s bank account (or to the recipient’s Zelle account if they don’t have a participating bank).

• No Interest Earned: Because Zelle is a transfer service and not a deposit account, you do not earn interest on funds sent or received via Zelle.

• Focus on Convenience: Zelle prioritizes speed and convenience, often enabling near-instant money transfers. This makes it a popular choice for splitting bills, paying back friends, or sending money to family.