EWS launches Paze digital wallet to help banks compete in digital payments market

Early Warning Services (EWS), which operates the bank-run peer-to-peer payments platform Zelle, is setting ambitious goals for its new digital wallet, Paze. The company says Paze is designed to make e-commerce payments easier for consumers and merchants.

Similar to Zelle, Paze will be co-owned and operated by the seven largest banks in the U.S. EWS revealed that the digital wallet is scheduled to launch with merchants and member banks in June, followed by a broader rollout in the fall.

"This program was designed from the start to be available to all financial institutions in the U.S., regardless of size," said James Anderson, managing director of Paze. Anderson, a former Mastercard executive, joined EWS in August to lead the bank wallet project. "Our ultimate goal is to achieve universal accessibility for Paze, both on the consumer side and the merchant side."

However, some industry experts point out that launching a new digital wallet is no easy feat, even with the support of the nation's largest banks. They argue that Paze must overcome numerous obstacles in user adoption and security to gain a share of the digital wallet market.

Network effects

EWS launched Zelle in 2017 and is now betting that Paze can replicate or even surpass the consumer adoption speed of that P2P payments platform.

"You need more than just presence," Anderson said of EWS's efforts to bring payment services back into the banking system. "You need to be at the front of the line, top of mind for consumers, seen as the solution provider. I think that's what Zelle achieved in the P2P space, and that's what Paze will achieve in the merchant payments space."

According to data released by EWS in February, more than 1,800 financial institutions have joined the Zelle network. EWS said the platform's bank network grew 40% in 2022, with 97% of institutions that joined last year having assets under $10 billion.

EWS data shows that consumers and businesses sent 2.3 billion payments totaling $629 billion through Zelle in 2022.

Seven of the largest U.S. banks, including JPMorgan Chase, Bank of America, and Wells Fargo, make up the consortium that owns EWS. Anderson said this means Paze will automatically be loaded onto 150 million Visa and Mastercard accounts on day one.

But Charlotte Principato, a financial services analyst at Morning Consult, believes that simply putting Paze at consumers' fingertips doesn't mean banks will automatically overcome adoption hurdles.

"The idea that banks own or are maintaining their position as the primary provider of consumer relationships is a flawed premise. I think it's a bank-centric view," she said. "People don't just have relationships with a single financial institution. Everyone uses multiple apps to piece together a financial services portfolio that works for them."

Paze is launching into a crowded and competitive market where users of one digital wallet are likely to use others, according to Morning Consult data. A study the research firm released in February found that nearly 90% of Apple Pay users said they also use PayPal, and almost all users of other competing digital wallets also use PayPal.

The research also found that 65% of Google Pay users said they also use Block's Cash App, while more than half of Cash App users also use PayPal's Venmo.

Principato said that if EWS's digital wallet wants to differentiate itself from other players and become consumers' preferred digital wallet, it must provide a first-class customer experience.

Seth Ruden, global advisory director at fraud prevention fintech BioCatch, said this will be a tough hurdle for Paze given the stiff competition from entrenched players Apple and Samsung.

"It's certainly going to be tough," he said. "They already have an excellent user experience. That's Apple's forte. Their design philosophy and user experience are likely to be one of their strongest value propositions."

Principato said Paze offers banks the opportunity to participate in the digital wallet race and stay relevant.

"But I don't think it puts them ahead of Apple Pay or PayPal in the minds of consumers," she added.

Winning merchant support

Principato said consumers are not loyal to digital wallets because not every merchant or retailer accepts every type of wallet.

"The good news for banks is that customers don't seem to have a limit on the number of digital wallets they'll sign up for, but that doesn't guarantee they'll use a new wallet frequently," she said.

Principato noted that this is why winning merchant support is crucial.

Anderson highlighted Paze's immediate reach, saying that over 150 million accounts will be able to use Paze at launch, giving the platform "a more relevant starting point" that will incentivize merchants to adopt the digital wallet.

"And we have the opportunity to build on that further," Anderson said.

While that's attractive from a merchant perspective, Principato said banks need to prove that Paze is attracting a new set of consumers.

"Banks have to come up with some hard data on who these users are," she said. "If other digital wallets already reach all the consumers who might be interested in their products, why would merchants add this new payment method?"

But Anderson said EWS is confident that merchants are recognizing Paze's value.

"They really like the idea that it comes from banks and is endorsed by banks, so it carries the credibility and security of banks," he said.

Ron de Bos, head of payments at Digital River, an e-commerce, payments, and marketing services company, said he expects merchants to respond positively to Paze, provided banks can demonstrate they deliver on their promise of fast checkout.

"Existing brand reputation should go a long way in building trust, which could lower some barriers to rapid adoption, but banks need to ensure they can process transactions as quickly as competitors to make the product attractive to both merchants and consumers," he said.

Do banks have an advantage?

Like Zelle, one clear difference between Paze and its digital wallet competitors is its connection to regulated financial institutions. But whether consumers view that connection as enhancing the platform's credibility over other digital wallets remains to be seen.

De Bos said banks have an advantage in this regard.

"Consumers go to banks for peace of mind. If they apply the security principles of online banking to a digital wallet, its appeal should be broad," he said. "Customer adoption could be an issue, but a secure and reputable image, combined with the fact that these banks may be consumers' primary banks, provides an additional advantage that makes the effort worthwhile."

However, Principato is not convinced that banks' reputations will give them a competitive edge in the digital wallet race.

"I don't think banks can take it for granted that consumers will use Paze because they feel it's more secure," she said. "If anything, Apple focuses much more on privacy and security in its marketing than banks do."

Meanwhile, Ruden said EWS's digital wallet could become a prime target for bad actors looking to exploit any unrecognized weaknesses on the platform.

"EWS may have excellent methods to protect this channel," he said. "But the reality is that any newly created channel has opportunities for exploitation, especially in the early stages when adoption is just starting to increase."

Anderson said EWS is adding multiple layers of protection to Paze to ensure platform security.

"Consumers have the right to dispute transactions, get refunds, and ultimately get their money back," he said, adding that all transactions through Paze will be card transactions. "These rights and benefits will be the same for transactions through Paze as for transactions conducted in any other way. That's a foundational layer."

EWS said they have also designed protections around Paze's wallet claiming process. Anderson said users can claim their wallet by logging into the digital platform of a participating financial institution.

Anderson added that consumers can also choose to claim their wallet when checking out on a participating merchant's website.

He also said that for every transaction through Paze, consumers will receive a one-time password sent to their phone via text message.

"It's a layer of protection with every use," he said. "We ensure that every time the wallet is used, it's the consumer themselves."

Ruden said EWS's member banks have significant resources to devote to Paze's promotion and initiatives to encourage consumer usage.

"It will take a lot of effort on their part to ensure both retailers and consumers are on the adoption path," he said. "But that's also when fraud issues begin. The more open you are to adoption, the greater the likelihood that fraud will start to aggregate."

Data opportunity?

Principato said it's unclear how much of a consumer data opportunity Paze presents for participating banks.

"It looks like they're still using the same payment rails as other digital wallets, essentially partnering with Visa and Mastercard," she said. "I don't think they gain much extra in terms of personal interaction or sales data."

Principato said Paze could give banks better insight into consumers' cash flow and everyday purchasing behavior, but as long as consumers continue to use multiple digital wallets, banks won't get the full picture.

While the data collection opportunity is highly attractive for the adoption of any new digital channel, banks interested in joining Paze are likely motivated by other reasons.

"The data collection opportunity... is likely a consideration," De Bos said. "But more likely, banks recognize the need to keep pace in the rapidly evolving payments world, as super apps, digital wallets, and the like have the potential to replace traditional bank cards."