Could Zelle replace Venmo and Cash App? How about Mastercard and Visa?
I'm noticing that both the political and investment arena of the US are getting concerned about the excess payment processing fees that $MA and $V have been taking advantage of for many years.

As Mastercard and Visa see their shares hit a 52-week low, Wall St. is expecting that antitrust scrutiny could hinder the pricing power that these payment processing companies have over merchants.

While some might think that $PYPL or $SQ could capitalize on the growing antitrust concerns with their payment processing devices, there are some things to think about.

First, how much does each firm charge merchants for transactions?

Square charges 2.6% + $0.10
PayPal charges from 1.9% to 3.5% and $0.05 to $0.49 depending on the PayPal product that the merchant is using.
Visa charges 1.15% + $0.05 to 2.4% + $0.10
Mastercard charges 1.15% + $0.05 to 2.50% + $0.10

Meanwhile, Zelle charges banks $0.45 to $0.90 per transaction. It's free for users in the meantime, and the network moves more money than Venom and Cash App combined. However, Zelle users are limited to sending up to $15,000 per month. Meanwhile, users of Venmo can send up to $60,000 per month, and users of Cash App can send up to $30,000 per month.

Zelle was made to replace the need for paper checks for doing transactions. Smaller service-oriented businesses have been using Zelle because of the lack of payment processing fees and instant settlement.

Sure, most businesses don't normally take checks. But, I do think that with the lack of fees and the resources that the big banks have, Zelle can be made to provide merchants with a payment processor that has lower fees. Many product-based businesses accept PayPal, Venmo, and Cash App. I wouldn't be surprised if they stop using those services and start using Zelle. Nearly all Americans have a bank account with the big banks, which means that they have access to Zelle.

If the banks decide to pass down the processing fees to the merchants, I do wonder how the flat payment processing fee system would work. Would they charge a flat $0.45 transaction fee as a way to make Zelle a more competitive payment processor?

Since interchange fees are high because the costs are made to cover the costs associated with accepting, processing and authorizing card transactions, by removing the third parties (i.e. Mastercard, Visa, PayPal, etc.), payment processing fees can be less. Since the Big Banks own Zelle, Zelle can replace those payment processors.

In the meantime, merchants will have to hope that government regulators can impose a cap on payment processing fees. And I wouldn't be surprised if the US chooses to replicate the EU's regulations on payment processing fees by imposing caps on fees.

Here are the sources of the payment processing fees:


Joshua Simka's avatar
Thanks for the interesting info on transaction fees and the angle for merchants. Do you follow $ADYEY? Where would you put them in the midst of all this and what implications might regulated caps on processing fees have for them?
Dissecting the Markets's avatar
@tomato I don't follow Ayden. Is the company most similar to Stripe?
Joshua Simka's avatar
@dissectmarkets Adyen I guess is a "payment gateway." I think it works somewhat differently than Stripe but they are definitely competitors. I'm pretty impressed by Adyen's financials and management. Always trying to learn more about them.
Dissecting the Markets's avatar
@tomato it's hard to say how Adyen will fit in with Zelle being a potential solution to the whole trend of fighting the high interchange fees. I will say that there will still be a need for a "payment gateway". I wonder if they will use the changing dynamics of the payments space to try and get a bigger share of the payment processing fee pie or choose to lower their own fees.
Alan's avatar
I don’t see Zelle replacing payment processors. Even within PayPal and Block, the payment processing side (PayPal and Square) is distinct from the consumer app (Cash App and Venmo). It seems highly unlikely that the big banks would club together to introduce a line of payment processors and even if they did I doubt they’d be successful since other companies have a lead and know how.

If a customer uses cash app pay and has the money in their account, then credit card fees are avoided because the credit card network is not being used. Venomo is similar I think. This does look like an opportunity for Cash App and potentially Venmo if they can incentivise merchant and/or consumer adoption by sidestepping credit card fees.

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