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Zelle vs. Venmo

Casual online payment systems are pretty common these days. They're a great way to split a restaurant bill, pay your rent, and maybe loan money to- and receive payback from- a trusted friend.

But as we (should) all know by now, mixing money and the internet can be risky. People have been scammed out of money on Zelle, Venmo, PayPal, CashApp, gift cards, and countless other methods. The bad guys know a lot of ways to separate you from your money.

So I'm going to go over the most popular two payments methods and help you understand some key and important differences between the two.


Ye Olden Days

As is my wont, a bit of history first.


One of the oldest and largest online-only payment systems is PayPal which started back in Dec 1998. It was envisioned as an easy way for regular people to send relatively small amounts of money to each other via email.


eBay, the online auction giant, was fairly young at the time. Payments to sellers on eBay were usually settled with personal checks or money orders. But when PayPal came on the scene, it quickly gained traction as a safer way to pay.

Safer because you didn't have to share any sensitive financial info with the other party. And, later on, with a buyer and seller protection programs. As you probably know, your checking account number, a pretty darned sensitive bit of information, is printed on every check you write. Up till then you probably only wrote checks to pay monthly bills (wow, remember that?) and maybe at a store before credit/debit cards completely took over.

But trust became a cause for concern as buying and selling online with people we didn't know and likely quite far away increased. With PayPal, you needn't give anyone else your bank account info. eBayers loved it so much that eBay bought PayPal in 2002 for $1.5bn. eBay later sold PayPal but that's not important here.

PayPal's trajectory since being bought by eBay was more toward a buyer-seller relationship; buying stuff on eBay and eventually from other retailers as well. Today, PayPal is a payment option on many retailer websites small to large. But because of the emphasis on the buyer-seller model, PayPal never really become all that popular in the casual payment segment.

PayPal wanted to fix that. It wanted to become the lingua franca of the casual payment segment so it bought Venmo in 2013. That's right. Venmo is (now) owned by PayPal. A lot of people, mainly eBay sellers with a long history with PayPal, don't much care for them.

Modern Times

Venmo has its issues. For one, it was built with a social media mindset. e.g. It wanted access to all your phone's contacts. If you allowed that, then Venmo would expose those contacts to other all other Venmo users. Pretty unbelievable.

Second, unless you specifically told it otherwise in the settings, Venmo would publicly share the details of your transactions! Say what?!? The morons in charge thought it would be a great idea to structure Venmo as a financial Facebook or something, sharing sensitive information publicly. If this is the mindset of Venmo then I want nothing to do with them. I've posted a link at the bottom to an article on the NY Times discussing this very thing.

Third, you have to give Venmo your banking info. Given how they've abused their users as noted above, I certainly would not recommend sharing sensitive banking info.

Meanwhile, the US banking industry wasn't too thrilled that Venmo was eating their lunch. But the banks offered no practical alternative for casual payments. "Wiring" money is expensive, tedious, slow, and requires knowing the recipient's account info. Using a credit/debit card required the recipient to have a "merchant account" established to accept those card payments. Regular people don't usually have merchant accounts so that doesn't work. There's also fees charged to the merchant that can be upward 3.5% to accept credit cards. Ouch.

Venmo removed all that friction, making it free and easy to send and receive money, albeit with the privacy problems I discussed above. So the banking industry got cracking on their own solution and came up with Zelle. Today, Zelle, owned by a consortium of banks, moves more money than Venmo but lots of people still aren't aware of it. Or if they are, they may not understand some important differences, which I'm going to go into next.

Key Differences

Venmo is a 3rd party payment facilitator. To use Venmo, you must create an account and tie it to your banking checking account. When someone pays you via Venmo, that money goes to Venmo first, then is deposited into your bank checking account. That can take 1-3 days. Instant transfers are available but at a cost.

Zelle, unlike Venmo, is a 1st party payment product, baked right into the banking system. If your bank offers Zelle, then it's likely already in your online banking app. Most banks and credit unions offer Zelle now, and more are coming onboard, so there's a good chance you have it available. Since it's already baked in, then you don't have to create any new account or share your sensitive banking info with a 3rd party, like Venmo and the others. At most, you'll just need to enroll. See your banking app for details.

Fraud Protection

Paying with Zelle or Venmo is tantamount to paying with cash. There is generally no fraud protection. PayPal offers some fraud protection when you're buying from an approved seller that accepts PayPal. But those protections aren't available for casual peer-to-peer type transactions.

So when you read or hear that Zelle, for example, is rife with fraud because people are being scammed, understand that Zelle itself hasn't been compromised. Rather, a skilled scammer is using conman tactics to trick people into sending them money using Zelle or Venmo. I'm not victim blaming here because a lot of scams are difficult to identify and are expertly crafted to scooch right past the mark's defenses.

Could Zelle and Venmo do more to reduce the likelihood of you being conned into sending money to a scammer? Almost certainly yes. But the more security they implement along these lines -- trying to prevent people from becoming victims by doing something ill-advised -- the potentially more difficult using these services become. It's a difficult and delicate balance.

In short, people are scammed because they are tricked into sending money as opposed to the thief hacking Zelle or Venmo in some other way. So the way to avoid being tricked is to be highly suspicious and know the ways of the con.

So, how to stay safe and not fall victim to Zelle, Venmo, and other payment systems fraud?

Here are some common types of fraud using any instant payment service and things to do to stay safe.

  • One of the more common frauds is the me-to-me scam. It's a complex fraud with a number of moving parts so I won't go into all the details here (there's a link at the bottom). But the first step is (usually) getting a phone call purportedly from your bank (but it's not, even if the caller ID says it is!) warning you that a fraud might be taking place on your account and to please help them. The caller will then ask you to use Zelle (usually) to send money to yourself. Stop right there and hang up!

  • Do not issue payment to people you do not personally know and trust.

  • Add two-factor authentication to your bank account. Yes, it's that important.

  • Use a unique and fairly long password (15 characters or more) for your bank account. Never reuse previous passwords! Use the password saving feature in your browser.

  • Add a password or PIN to your phone if you don't have one. Shockingly, I still run into clients that have no lock on their phone.

If you follow these steps then you are unlikely to fall prey to Zelle or Venmo scammers.

But wait, there's more...

The Federal Reserve is launching a new centralized payment system called FedNow that promises to enable real time payments between parties. Apparently its been years in the making. It's still in a soft launch, available at only a handful of banks while the system is tested. But when this becomes widespread, it could be a game-changer for making electronic payments quickly and easily.

More here and here on FedNow.

My preference between Zelle and Venmo?

In my opinion, Zelle is the better choice because...

  • Payment is very nearly immediate (within a couple of minutes), not days later.

  • There's no cost to sender or receiver.

  • It's (probably) already in your banking app so there's nothing new to download.

  • No full-sized sign-up. Enroll in a few clicks using your existing banking app already on your phone.

  • Don't have to disclose your banking info to anyone.

  • Is run by the banks who are under more regulatory control than 3rd party systems like Venmo, PayPal, and CashApp.

So there you are. The internet is full of info on the wide variety of payment scams -- just Google it.


NY Times links are washed through Google to bypass any paywalls allowing you to read these articles.

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