EWS launches Paze digital wallet to help banks compete in the e-commerce payment market

Early Warning Services (EWS), which operates the bank-run P2P payment platform Zelle, has ambitious plans for its new digital wallet, Paze, claiming the product will simplify e-commerce payments for consumers and merchants.

Similar to Zelle, Paze will be jointly owned and operated by the seven largest U.S. banks. EWS says the digital wallet will launch with merchants and member banks in June, with a broader rollout in the fall.

"This program was designed from the start to serve 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 make Paze universally available on both the consumer and merchant sides."

However, some industry experts point out that even with the backing of the largest U.S. banks, launching a new wallet is no easy task. They believe Paze will face significant hurdles in user adoption and security as it seeks to gain market share in the digital wallet space.

Network effects

EWS, which launched Zelle in 2017, is now betting that Paze can replicate and eventually surpass the P2P platform's consumer adoption rates.

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

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

EWS says 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, form the consortium that owns EWS. Anderson says this means Paze will be automatically 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 assumption 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 suits them."

Paze is launching into a crowded and competitive market where digital wallet users often use multiple wallets simultaneously, 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 competing digital wallets also use PayPal. Meanwhile, 65% of Google Pay users said they also use Block's Cash App, and more than half of Cash App users also use PayPal's Venmo.

Principato says EWS's digital wallet must have a first-class customer experience if it wants to differentiate itself from other players and become consumers' primary digital wallet provider.

Given entrenched competitors like Apple and Samsung, this will be a tough hurdle for Paze, says Seth Ruden, global advisory director at fraud prevention fintech BioCatch. "It will certainly be difficult," he said. "They already have an excellent user experience. That's Apple's strength. Their design philosophy and user experience are perhaps one of their strongest value propositions."

Paze offers banks an opportunity to participate in the digital wallet race and stay relevant, Principato says. "But I don't think it will elevate them above Apple Pay or PayPal in the minds of consumers," she added.

Winning over merchants

Consumers are not loyal to digital wallets because not every merchant or retailer accepts every wallet, Principato says. "That's good news for banks because customers seem to have no limit on the number of digital wallets they'll sign up for, but it doesn't guarantee they'll use the new wallet frequently," she said.

That's why winning over merchants is crucial, Principato says. Anderson highlighted Paze's immediate reach, saying more than 150 million accounts will be able to use Paze at launch, giving the platform "a fairly relevant starting point" that will incentivize merchants to adopt the digital wallet. "And we have the opportunity to expand further," Anderson said.

While that's attractive from a merchant perspective, Principato says banks need to prove Paze is attracting new consumer segments. "Banks have to come up with hard data on who these users are," she said. "If other digital wallets already cover everyone who might be interested, why would merchants add this payment method?"

But Anderson says EWS is confident 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, payment director at Digital River, an e-commerce, payment, and marketing services company, says he expects merchants to respond positively to Paze as long as banks can prove they deliver on their promises for 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 their offering attractive to both merchants and consumers," he said.

Will 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 see this connection as enhancing the platform's credibility over other digital wallets remains to be seen.

De Bos says banks have an advantage here. "Consumers go to banks for peace of mind. If they apply the same security principles to a digital wallet as they already do in their online banking operations, the appeal should be broad," he said. "Customer adoption could be an issue, but the secure and reputable image, plus the fact that these 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 for granted that consumers will use Paze because they assume it's more secure," she said. "If anything, Apple emphasizes privacy and security in its marketing more than banks do."

Meanwhile, Ruden says EWS's digital wallet could become a prime target for malicious 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 presents opportunities for exploitation, especially in the early stages when adoption begins to accelerate."

Anderson says 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. "If a transaction is made through Paze, its rights and benefits will be the same as any other transaction. That's a foundational layer."

EWS says they have also designed protections around Paze's wallet claim process. Anderson says users can claim their wallet by logging into the digital properties of their participating financial institution. Consumers can also choose to claim the wallet at checkout on participating merchant websites. He added that for every transaction through Paze, consumers receive a one-time password 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 says 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 it will also raise fraud concerns. The more open you are to adoption, the greater the likelihood that fraud will start to cluster."

Data opportunity?

Principato says it's unclear how much of a consumer data opportunity Paze presents for participating banks. "It seems like they're still using the same payment rails as other digital wallets, which is really working with Visa and Mastercard," she said. "I don't think they'll gain much more in terms of individual interaction or sales data."

Paze could give banks better insight into consumers' cash flow and everyday purchases, Principato says, but as long as consumers continue to use multiple digital wallets, banks won't get the full picture. While the data collection opportunity is a powerful draw for adoption of any new digital channel, there may be other reasons for interested banks to join Paze.

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