Last time I wrote about the unbundling and rebundling of payments; what I didn’t cover was the downside, which is greater fragmentation of payment services.

In the old world, consumers had limited choices when it came to payment methods: Visa, Mastercard, American Express for credit cards (along with domestic brands like China UnionPay and Discover). In the new world currently in development, there are many more choices. Recently, WorldRemit, a remittance startup that claims 120 million accounts around the world, announced integration with AndroidPay. This integration relies on the open APIs published by Google that unbundle its digital wallet from any particular payment system. We also had the Zelle launch, which relies on open APIs both to integrate with bank mobile apps as well as to power its own independent app. With this launch, Zelle joins a crowded field of peer-to-peer (P2P) payment providers, including Dwolla, PayPal, Venmo, Square Cash, Facebook Messenger Payments, Apple Pay Cash, and others.

The problem is that none of these P2P providers interoperate, even though they may be using common open APIs. If I am a consumer looking to try a P2P service, I need to know that my friend or family member is using a compatible service. We may both be using Mastercard MoneySend behind the scenes, but if the front ends are different, then there is an enrollment process that needs to be undertaken. Even if Zelle succeeds in achieving access to every bank account in the United States, this enrollment still needs to take place. By contrast, many people have already enrolled in PayPal and Venmo, and so there is likely to be conflict if I try to use Zelle to send money to someone who is already enrolled in an alternate payment system. They may reasonably ask why they should sign up for a new system, instead asking me to use the system with which they are already enrolled. This fragmentation will slow adoption of P2P payments. For some further discussion of this issue, see this Digital Transactions article, where I explained some of the challenges.

The missing element here is a common directory service. I wrote about this problem in my analysis of whether the world is ready for B2B payments, after many unsuccessful attempts. While P2P is very different, this lack of a common directory is the same. What is needed is interoperability between P2P networks; a Zelle transaction should be convertible into a PayPal transaction, so that wherever the transaction starts, it can end up wherever the destination account is enrolled. Zelle’s partnerships with FIS, Fiserv, Jack Henry and Associates, and CO-OP Financial services may go some way toward addressing this concern, because it could in theory integrate with the P2P networks those processors already provide. For example, Fiserv could enable its PopMoney service to interoperate with Zelle.

Alternatively, banks could simply support multiple P2P payment providers in their online and mobile banking channels, giving the consumer the choice of which network to use. I do not expect this to happen right away, however, since the banks seem eager to promote their own service over those of competitors. As time goes on, unless Zelle is successful at using its real-time capability to marginalize the other P2P services, I expect that support for multiple networks is something banks will have to consider, just as merchants support multiple checkout buttons. Even the real-time feature is no longer exclusive to Zelle, as PayPal just switched on the capability to transfer funds directly from a PayPal account to a Visa or Mastercard debit card in real-time, as a result of the partnerships it struck last year. A directory service is something that the Federal Reserve could build as part of its effort to establish real-time payments in the U.S.

What do you think? Will Zelle take over the P2P payments space, or will it be forced to share the market with multiple other services? How will banks respond to customer demand for choice of networks? Let me know what you think in the comments.