Now that warm weather is here, I’ve returned to my Saturday morning ritual of visiting our neighborhood farmer’s market to satisfy my craving for the pungent bulbs only “Garlic Guy” can provide. He’s just one of the many Zelle® contacts I keep in my phone, along with my daughter, some colleagues from work, and a smattering of other people I pay digitally. (I bet you’re thinking of your own list of regular recipients now: your lawn crew, landlord, or even that hairdresser you like to tip right from the chair.)
Like many of you, I’ve come to rely on the person-to-person (P2P) payment services many community banks and credit unions offer.
Among the variety of P2P options in market today, Jack Henry provides two prominent solutions that can be used to send money to Garlic Guy and most anyone else: Zelle and Payrailz® Pay a Person™.
While both options move money fast from one person to another, they differ significantly in their methods and market strategies. That's why it’s crucial that you understand the differences between Zelle and Payrailz Pay a Person before choosing how your financial institution will deliver P2P digital payment services.
Closed Loop vs. Open Loop
One of the fundamental differences between Zelle and Payrailz Pay a Person (P2P) is their operational models.
The Zelle network operates as a closed-loop system, meaning that both the sender and receiver of the money must be enrolled in Zelle and have an account at a participating financial institution to complete a transaction. This model ensures quick and secure transfers within a defined network, making it a popular choice among large banks and their customers. And with its strong brand presence, community banks and credit unions can realize a halo effect from Zelle brand marketing.
Payrailz Pay a Person, on the other hand, operates as an open-loop system that allows users to quickly and securely send money to anyone, without both parties having to be on the same platform. With this open-loop approach, the sender needs only the receiver’s email address or phone number to send them money. The recipient then chooses how they want to receive the money: via instant payment (FedNow® or RTP®), push to card, or standard ACH. There’s even an option for users who bank at the same institution to get funds via a direct post from one account to another.
On Markets and Choices
A financial institution’s choice between Zelle and Payrailz Pay a Person is often determined by the market it’s serving. In our experience, in regions where Zelle is deeply penetrated, banks and credit unions tend to adopt it to remain competitive with larger institutions. The extensive Zelle network, which includes over 2,200 financial institutions across all 50 states, makes it a compelling choice for community institutions looking to leverage its widespread acceptance and fast transfer capabilities.
Alternately, in areas where Zelle is not as dominant, banks and credit unions may lean towards the open-loop Payrailz option. Pay a Person’s inclusive person-to-person (P2P) model can support a broader audience, including those who may not have access to Zelle. This approach can be appealing to smaller banks and credit unions that don’t wish to be limited to a closed network.
Why Offering P2P Matters
Regardless of which network you choose, Zelle or Payrailz Pay a Person, Jack Henry strongly recommends that all financial institutions consider offering a P2P solution. Consumers have shown a clear preference for receiving P2P services directly from their financial institution. When these services are not available from their bank or credit union, accountholders tend to seek them elsewhere. This can result in funds moving off an institution's books.
Moreover, the rise of non-traditional institutions has made it crucial for brick-and-mortar banks and credit unions to offer P2P services as a defensive play. Approximately 47% of new accounts opened last year were with non-traditional institutions. By providing P2P services, traditional FIs can help prevent their accountholder’s migration to neobanks that offer these convenient payment options.
The Value Prop for Community Financial Institutions
Offering P2P services is a great way for community banks and credit unions, who rely on strong customer relationships, to enhance their value proposition. Providing a modern, convenient way for accountholders to transfer money not only meets the expectations of tech-savvy consumers, who skew younger, it helps community institutions compete for older accountholders, who prefer to receive these services from their bank or credit union.
Statistics show that younger users, particularly millennials and Gen Z, are more likely to use P2P apps for their financial transactions. If they can’t get these services from their primary financial institution, they are likely to turn to a neobank that offers seamless P2P experiences. By integrating P2P services, community banks and credit unions can attract and retain younger customers, ensuring long-term growth and relevance in the digital age.
Ready, Set, P2P!
However you plan to make it easier to send money to Garlic Guy or anyone else, keep in mind that cash is no longer king. If you want your bank or credit union to continue to compete for consumer accounts, you need a P2P solution. The preference for mobile apps as the vehicle for person-to-person payments has stabilized at 50% of all users – greater than all of the other P2P channels combined. Whether you choose Zelle or Payrailz Pay a Person, P2P is where it’s at!
Zelle® and the Zelle® related marks are wholly owned by Early Warning Services, LLC and are used herein under license.
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