In many countries, bank account numbers work only in one direction. If someone has your bank account number, they can put money into your account but they can’t draw money out of it. Under this design, people who want to get paid happily give out their bank account numbers.
Here in the U.S., bank account numbers work in both directions. If someone has your bank account number, they can both put money into it (direct deposit) AND draw money out of it (direct debit). This makes people reluctant to give out their bank account information, even though the routing number and the account number are printed in plain view on their checks.
Third-Party Transfer Services
Because bank account numbers in the U.S. have no built-in protection for unauthorized debits, banks control who can access the Electronic Funds Transfer (EFT) system to do direct deposits and direct debits. Businesses can sign up for access, but in general, individuals can’t. This makes it difficult for individuals to pay another person electronically. I can’t easily pay someone even if they give me their bank account’s routing number and account number.
Some third parties stepped in. They act as a middleman to facilitate person-to-person payments. You pay the third party and the third party pays the other person. PayPal, Venmo, Cash App, Apple Pay, Google Pay, and Facebook Pay all work to a degree. It’s free to send money and receive money using one of these online services or their associated mobile app when it doesn’t involve a credit card (debit cards work).
Both the sender and the recipient must be on the same third-party system. It doesn’t work if you use Venmo and the person you’re paying uses Cash App. Either you also have to sign up for Cash App or they also have to sign up for Venmo. It gets unwieldy if you need to pay multiple people all on different third-party systems.
These third parties are private businesses. They have their agenda and they also must protect themselves from high-risk transactions. When you receive money in the third-party system, the money stays in that system. It doesn’t go to your bank account. If you want to move the money to your bank account, you may have to take a manual step to transfer it. The transfer may be subject to scrutiny and restrictions, and it can take some time.
Bank-to-Bank Transfer with Zelle
Banks also got into the game. They funded their own middleman Early Warning Services, which created Zelle. Zelle provides the infrastructure but it leaves the customer-facing parts to the banks. Both the sender and the recipient interact with Zelle primarily through their online banking or their mobile banking app. When both parties’ banks support Zelle, money leaves the sender’s bank account and lands directly in the recipient’s bank account almost instantly (in minutes).
Banks can choose to charge a transaction fee for Zelle but most banks make it free to both send and receive. It works much better than using those tech companies because the money goes from one bank account to another bank account. It doesn’t stay in a third-party system.
All large banks support Zelle (Chase, Bank of America, Wells Fargo, Citi, U.S. Bank, Truist, PNC, …). Some smaller banks and credit unions signed up as well. See the full list on Zelle’s website.
You need to do a one-time enrollment in Zelle before you send or receive money for the first time through Zelle. You enroll with an email address or a mobile phone number, and you tell Zelle which bank account the money should go into when you receive money through Zelle. It can be either a checking account or a savings account.
To send money through Zelle, you get the enrolled email address or mobile phone number from the intended recipient. You tell Zelle to send money to the recipient’s account using that email address or mobile number. Zelle sends a payment notification by email or text message to the recipient when it processes the payment. The recipient will see the money in their enrolled bank account.
This came up when I needed to set up rent payments to my landlord. If I use my bank’s bill pay service, the bank will mail a paper check. My landlord lives in different places at different times of the year. If I pay him by Zelle, it goes into his bank account no matter where he’s at. Because I have everything else on autopay, I’d like to schedule the rent payments to go out automatically on a set date every month.
To my surprise, finding a bank that can do this was a challenge. Each bank sets its own policy on what it makes available through Zelle. Not all banks chose to support scheduling recurring Zelle payments. Those that support it have a low limit on how much you can send.
For instance, Navy Federal Credit Union allows sending a maximum of $2,500 every 30 days, and some banks allow sending only $500 per day. Bank of America allows sending up to $3,500 per day and up to $20,000 every 30 days through Zelle, but it doesn’t support scheduling automatic monthly payments. These limits aren’t inherent with Zelle. Different banks chose to impose different restrictions.
If your recipient’s bank supports Zelle, it works well for one-time payments, such as paying friends for shared expenses or paying a gardener, a personal trainer, or a babysitter. The low limits set by banks and their inconsistent support for scheduled payments make it more difficult to use Zelle for paying rent. Because Bank of America has a higher limit but it doesn’t support scheduling recurring payments, I have to set a calendar reminder and pay manually each month. It’s not the end of the world but I really wish it could be automated.
One important caveat for using Zelle and other third parties for person-to-person payments is that you have to be absolutely sure you’re paying to the correct email address or mobile number. If you mistype the recipient’s email address or mobile phone number, the money can go to the wrong person and it’s difficult or impossible to get the money back.
Some banks maintain a list of people you paid before. It helps for repeated payments but you still need to be extra careful when you’re paying someone for the first time. Some banks require typing the email address or phone number of the recipient every time. Doing it right last time doesn’t guarantee you’ll do it right this time. If you have a choice between different banks, use one that maintains a list of payees (Bank of America does).
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