Friends and Family Money: P2P Transfers and Financially Fragile Consumers

We assess the impact that real time money transfer technology has on consumer outcomes, particularly during periods of financial fragility. We do this by developing a new data set that documents use of Zelle—the most widely used P2P money transfer technology in the U.S. today—constructed from transaction level data from a large data aggregator for millions of U.S. consumers. We combine these data with a hand-collected data set on Zelle partnerships for 1,113 financial institutions. Finally, we introduce a novel instrument by identifying the location of consumers' close social circle using transactions data. We make use of the fact that money transfer technology is a network good and hence your own use is a function of the use by others, and particularly that of your close friends and family. We then use variation in Zelle bank partnerships at the location of consumers' residence and consumers' close social circle to instrument for Zelle use. We compare users residing in the same city with similar incomes, but with different exposure to Zelle, and observe consumer outcomes during periods of financial fragility. We find that Zelle use results in fewer overdrafts and higher consumption by financially fragile consumers. Consumers substitute away from traditional methods of transferring cash towards Zelle, an effect that is more pronounced for smaller transfer sizes and low-income consumers who are more price-sensitive.