Last year, there was trouble at JPMorgan Chase, and Zelle payments didn't work. People were unhappy, and it lasted until the next day. This could cause trouble for Zelle and other banks for a bit.
This is the second time in six months that Zelle had a problem with a bank linked to Early Warning Services, the owner of the app. Earlier, in January, Bank of America had a problem with Zelle. Both banks are part of the seven owners of Early Warning.
Old bank systems sometimes make mistakes with digital payments. This could become a bigger problem as more payments use The Clearing House's RTP and the Federal Reserve's FedNow.
Peter Tapling, a payments expert, said, “Instant is great when it works. But when it's broken, we find out about it right away.” The mix of old and new systems will have more problems.
JPMorgan Chase accepted the problem after Zelle blamed them. The big bank, with $3.9 trillion in assets, didn't say what caused the issue. They fixed it by midday Wednesday, but users kept complaining about DownDetector.
However, when JPMorgan had problems with Zelle, other banks were not affected. JPMorgan is the largest player in Zelle payments. About 22% of Zelle transactions involve JPMorgan's customers.
Crone Consulting LLC estimates that JPMorgan handles over $2 billion daily through Zelle, with around 27 million transactions involving 54 million users.
On that fateful day, over 1,500 people reported issues using Zelle. However, fewer complaints were received on Wednesday. Chase and Early Warning did not disclose how many banks and people experienced difficulties.
Tapling mentioned that big banks experiencing issues can cause problems, but it's not necessarily Zelle itself that's having issues.
Banks have trouble with new payment apps because their old systems were for paper checks.
New payment systems like FedNow and RTP have good backup plans,” Tapling said. “Fixing old bank systems is hard.
Big banks like JPMorgan Chase having troubles can cause issues for quick payment systems. More people and businesses want payments right away.
Richard Crone, CEO of Crone Consulting LLC, said, “These issues will continue until banks switch to true instant processing. But that won't happen soon.
Danger Ahead?
Chase Bank's sudden problem and its impact on Zelle highlight the difficulty of linking old-style bank systems with new payment methods. These old systems were made many years ago and need to change to handle instant payments better.
Zelle quickly blaming JPMorgan Chase, who owns a lot of Early Warning, might show the difference in how payment companies and banks deal with technology.
When Zelle faces issues, it directs users to their banks. It seeks assistance from other stakeholders like Bank of America, Wells Fargo, and PNC when necessary. According to Crone, payment networks usually don't accuse banks, as it impacts their image. Banks must manage such situations as routine challenges.
Early Warning and JPMorgan didn't confirm if they coordinated before issuing the statement. Each bank in the consortium manages its fraud protection. Tapling said they aim to prove it's not the network's fault. JPMorgan's ownership in Early Warning indicates their strong connection.
They hope to reassure people about the network's reliability. Crone warned that if Zelle doesn't clarify banks' responsibilities, it might lead to various issues.
Neglecting this could create major problems,” he added.
Underlying Risk
Crone mentions that for Zelle to avoid problems, it must ensure its system works well. Otherwise, they may halt its operations. Also, old technology might hinder Early Warning's Paze plans, a digital wallet tested with seven banks. They aim to expand it this year.
Paze, a digital wallet, relies heavily on other systems. If these systems fail, it could lead to significant issues. Early Warning's plan to launch Paze might face challenges due to these risks. It could create difficulties for stores, banks, and others to adopt Paze. This isn't just a one-time problem; it could deter people from trying Paze.
Crone mentioned that banks and investors dislike when payment providers blame them for outages. This is especially true if the outages affect RTP or FedNow. Better public affairs planning is needed, he added.
This is a warning,” said Crone. “Before launching RTP or FedNow, you should have a crisis plan. If the settlement chain breaks or real-time payments aren't secure, it could cause problems.
Tapling suggested that banks should improve their payment systems to avoid outages. He noted that with mobile banking, people frequently check their bank apps. As instant payments become more common, banks in weaker environments may face increased risks.