A problem at JPMorgan Chase caused disruptions in Zelle transactions on Tuesday, leading to complaints from users that continued into the next day. The impact on Zelle and its affiliated banks may extend for an extended period.
This marks the second Zelle issue within six months involving a bank connected to Early Warning Services, the owner of the P2P app.
The disruption at JPMorgan Chase comes after a similar incident at Bank of America in January, affecting Zelle payments. Both banks are part of the seven co-owners of Early Warning.
Problems frequently arise when digital payments pass through outdated core banking systems. This issue may escalate with the increase in transactions on networks linked to The Clearing House’s RTP network and the Federal Reserve’s real-time processing system FedNow.
“Instant is great when it works. But when it’s broken, we find out about it right away,” said Peter Tapling, a payments consultant and former Early Warning executive. “That intersection of brand new modern systems, and clunky old bank systems is going to become more evident.”
After Zelle attributed the outage to JPMorgan Chase, the bank took responsibility for the disruption.
The $3.9 trillion asset banking giant didn’t comment on the cause of the outage but stated that it was resolved by midday Wednesday. However, user complaints persisted on DownDetector, a website for reporting outages.
During JPMorgan’s outage, other banks on the Zelle network didn’t experience disruptions. However, JPMorgan is a significant player in the Zelle network, handling around 22% of its transactions.
According to Crone Consulting LLC, this translates to over $2 billion in transactions daily, involving approximately 27 million transactions from 54 million unique users.
Over 1,500 users faced issues with Zelle access on Tuesday, as per DownDetector. Complaints reduced the next day. Chase and Early Warning didn’t disclose the number of affected banks or consumers.
When a major bank on a network experiences downtime, it inevitably causes some disruption. However, these incidents don’t signify outages with Zelle itself; they reflect disruptions on one side of a two-sided payments exchange.
Disruptions in payment networks caused by banks underscore the challenge of integrating real-time payment networks designed for app-based systems with bank systems initially built for paper checks.
“At the network level, FedNow, RTP — those are generally written under modern architectures that have modern system resilience, failover capabilities, etc.,” Tapling said. ” While efforts have been made to modernize core infrastructures, those core systems are really hard to replace.”
Indicate a problem
When a big bank like JPMorgan Chase has an outage, it could mean problems for real-time payment networks. More people and businesses want payments instantly, so this is a concern.
“These kinds of issues are going to come up. And [they] won’t be fixed until the industry goes to a true real-time processing scheme for their core systems, which is not likely to come any day soon,” said Richard Crone, CEO of Crone Consulting LLC.
“The unexplained outage at Chase and its implications for Zelle point to the challenges of integrating real-time payment systems like FedNow with legacy batch-based bank systems designed over 70 years ago, which have to be adapted to accommodate non-repudiation and real-time processing requirements.”
Zelle’s quickness to point fingers at JPMorgan Chase, its biggest owner, might show the difference between the modern systems payment providers use and the older systems banks connect them to.
When outages happen, Zelle redirects users to their respective banks, which includes other Early Warning co-owners such as Bank of America, Wells Fargo, and PNC, upon receiving service inquiries.
“What’s interesting here is that very few, if any, payment networks ever point the finger and blame the issuing bank,” Crone said. “That has brand implications and trust implications for financial institutions, and they have to manage their publics like any other crisis management.”
Both Early Warning and JPMorgan chose not to comment on whether the public affairs message had been coordinated before its release. Participating banks handle their own fraud protections and responses.
“I think they’re just trying to make clear that it’s not a network resilience issue,” Tapling said, noting that JPMorgan’s sizable ownership stake in Early Warning suggests that their relationship was not souring. “The network wants to make sure that the public sees the network is being stable and reliable. They are protecting their own interests.”
Zelle could also open itself to risk, regulation and liability if it doesn’t make clear that the issuing bank is responsible for a failure, according to Crone. “Admitting anything less opens up Pandora’s box,” he said.
Built-in danger
Due to the inherent risk of settlement in Zelle, Crone emphasizes the need for the system to operate correctly 99.999% of the time. If issues arise, they will shut it down.
Additionally, outdated technology may impede Early Warning’s plans for Paze, a digital wallet currently in pilot with its seven bank owners, which it aims to expand later this year.
“A digital wallet such as Paze has even more critical dependencies with greater potential for processing interruptions. This outage threatens Early Warning’s Paze launch, highlighting settlement and processing risks, which may hinder adoption by retailers, issuers, and other stakeholders in the payments value chain,” Crone said. “It is not an isolated incident, and it doesn’t bode well for trying to gain pilot customers and showcase customers to try Paze, either merchants or issuing banks, beyond the seven owners.”
Crone suggests that banks and investors might disapprove of payment providers blaming them for outages, especially if disruptions impact RTP or FedNow. This could highlight the necessity for better public affairs contingency planning.
“This should be a warning, and really be a wake up call, to having your crisis management plan in place before launching RTP or FedNow,” Crone said. “[If] the settlement value chain were to break down, the real time part of RTP or the non repudiation of real time payments — that promise could be affected.”
Tapling suggested that upgrading payment systems for modern times could be more crucial for banks to prevent outages.
“They could have had a minor outage and nobody would have noticed it. But now you have mobile banking, where you could be looking at your bank app seven times a day,” Tapling said. “As we move more towards instant payments, those financial institutions that exist in more fragile environments are going to be exposed.”
