P2P or Person-to-Person payments are electronic funds transfers from one person (the sender) to another person (the receiver). There are a lot of P2P solutions available today. Some, like Zelle®, come from financial institutions. Others, like Venmo and PayPal, come from large financial technology (fintech) companies. P2P solutions transfer funds in different ways, such as Automated Clearing House (ACH) transactions, transfers initiated through debit card networks, or instant payments made through the Real-Time Payments (RTP®) Network from The Clearing House® (TCH) or the recently launched FedNow® Service from the Federal Reserve.
One important distinction between different P2P providers is whether they offer an open loop or closed loop solution. A closed loop solution allows the sender to pay anyone if they are also a user of that same solution. For instance, a PayPal user can pay any other PayPal user, but they can’t pay someone who doesn’t use PayPal. That’s because PayPal, like Venmo and Zelle, is a closed loop system.
Open loop systems, on the other hand, allow users to pay anyone, regardless of whether they are part of the solution used by the sender. This eliminates the need for the sender to know which solutions the receiver uses, and the receiver doesn’t have to disclose their PayPal, Venmo, or Zelle account name to the sender. Instead, open loop systems allow the sender to initiate payment using more common identifiers like an e-mail address or a phone number.
Through Zelle P2P and Payrailz Pay A PersonSM we provide multiple opportunities to enable financial institutions to allow their accountholders to pay anyone anytime, anywhere. While Zelle P2P and Pay A Person are similar, there are important differences that financial institutions should consider when deciding how to support P2P payments for their accountholders.
Zelle is a payment solution operated by Early Warning Services, a payments company owned by a group of the nation’s largest financial institutions. Zelle P2P is a closed loop system, but because it is run by the nation’s largest banks there are more than 100 million people with access to it. (About one-third of Americans surveyed—36%—report using it.) While Zelle funds are typically available to the recipient within minutes, transactions settle between financial institutions later through the ACH or debit card networks.
Payrailz Pay A Person is an open loop system. Recipients can receive funds without having to download an app or join a network. One-time and recurring payments can be made and delivered on the same-day, the next-day, or a designated future date using the good funds settlement model – which virtually eliminates the risk of overdrafts with pre-funded payments. Recipients can choose to deposit funds directly into a checking or savings account, or as a credit to their debit card. In the background, Pay A Person can use the ACH network or debit card rails to deliver the funds, with support for instant payments through the RTP® Network from The Clearing House and the FedNow® Service from the Federal Reserve coming soon.