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Big Banks Join Forces to Compete With the Likes of Venmo

Banks have an unexpected weapon in their latest battle with Silicon Valley: speed.

The biggest U.S. lenders, sometimes criticized for moving slowly, are revving up efforts to convince Americans to zap money to each other’s bank accounts instead of digging for dollars to pay the baby sitter or split a dinner bill.

But the banks face steep competition from digital rivals like PayPal Holdings Inc. PYPL -6.75 % ’s Venmo, the popular money-transfer service that has gotten a head start with millennials who also use it as a social-media tool. Banks also are trying to overcome their own rivalries to offer an app where customers of one bank can pay friends who bank elsewhere.

While banks and PayPal generally don’t collect fees from customers on such payments, the business is viewed as a basic service that can lead to other lucrative moneymakers such as lending and payments to merchants.

“Whoever wins the battle for person-to-person payments ultimately has the ability to win all of payments because customers want control over their own money,” says Osama Bedier, a veteran payments executive who has worked at Google and PayPal.

It is likely to become a more crowded battlefield. Facebook Inc., FB 0.32 % Square Inc., SQ 2.85 % and Alphabet Inc. GOOGL 0.65 % ’s Google unit also are pushing into person-to-person payments. Users of Apple Inc. AAPL -0.77 % devices will soon be able to ask its digital assistant Siri to make a person-to-person payment using the company’s messaging application. Square is expected to start making...