How does Venmo make money?

How does Venmo make money

How does Venmo make money?

As a free-to-use platform, Venmo generates revenue through transaction fees. … Many of Venmo’s services do not incur transaction fees, including transferring funds between friends through a major debit card or checking account. However, to cover processing costs, Venmo charges a 3 percent fee for payments by credit card.

Venmo are attempting the second best business model in fintech. It is going to try and use existing financial services rails to exploit the inaction of the incumbent providers.

Usually this is a tough strategy, but they may just get away with it because the incumbent providers suck.

Free is the future. And the past

Would you believe, in the UK, we’ve had almost instant free transfers between banks since 2009? Before that, you could make the payment, it just took 3 days.

In the United States the gap in the market was as wide as a bus.

The critical incumbent is the credit card. I wrote a blog on this using Amex [1]as an example, but I’ll summarize the main point here. You blow $1,000 at Macy’s. But Macy only receives $970.

$2 goes to Visa for using their network, $20 goes to say Capital One, and $8 goes to whoever Macy’s is using to process their transaction, most likely Chase Paymentech.

Cheques are beyond old. They should’ve died before I was born

Historically, at the other end was the checking system. But I mean are you serious, you had to get that cheque from Sacramento to Savannah to move your own money?

The system was expensive for the bank but was mostly free to the individual doing the sending.

When they decided to hype it up a little, they introduced the wire transfer, but for that people got charged.

Slowly the US banks started getting their act together, with selected institutions connecting their infrastructure.

Venmo

Now Venmo are jumping on what’s been built, and absorbing some of the risk of the incomplete system out there. Venmo are occasionally relying on you to be honest with your friends.

When you move money to your buddy, Venmo gets charged up to 3% (like Macy in the example) for credit cards, and they pass that cost straight to you. However, if you link up your bank accounts directly, they’ll move your money for free, when your bank lets them.

In the December quarter, Venmo processed $2.5bn of payment volume, up 174% year over year.

Venmo are currently losing money doing this because they are eating the cost of staff and systems while they grow the network.

However, this year will be the transition to revenues, if not profit. Venmo is now allowing merchants to take payments.

Paypal owns Venmo and probably unsurprisingly, they are going to follow the exact same pricing model, charging merchants 3%. However under these payments, if you use a credit card to fund your Venmo, you won’t get charged, only the seller.

I say probably unsurprisingly, as there was always the hope they would charge merchants 1% or 2%, and undercut the banks. But then that would be like a declaration of war on the owners of the financial rails they are using.

How does Venmo make money
How does Venmo make money?

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How does Venmo make money?

As a free-to-use platform, Venmo generates revenue through transaction fees. While most free-to-use mobile apps turn to advertisements for revenue purposes, Venmo has managed to avoid this path.

Many of Venmo’s services do not incur transaction fees, including transferring funds between friends through a major debit card or checking account.

However, to cover processing costs, Venmo charges a 3 percent fee for payments by credit card.

In comparison, Venmo’s parent company, PayPal charges a 2.9 percent fee for all debit and credit card transactions.

While Venmo presently reports zero revenue, its current operations help extend the reach of PayPal, which boasts $7.9 billion in revenue.

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There are the fees associated with cashing out your Venmo account – however, as Venmo (the account holder) holds all of the transactions until individual users ‘cash out’ I would assume they have developed a cash interest strategy.

Can I schedule payments on Venmo?

Offhand, no; as this facility is not available on Venmo; yet. Your bank, however may have, for which they will charge you !

What should be taken care of is that you have sufficient balance in the bank (payer); to ensure that the scheduled payments are indeed honored ?

I would presume that such payments would relate to rents, EMI’s / credit card to another bank (?); utility bills and similar services.

In India, however, I try not to schedule payments; as utility/service bills (claims); may tend to change, marginally and in any case, I get reminders both through e-mail / SMS; around the – payment due – period.

This feature isn’t available within the app. You can’t schedule either a payment or a request in advance or on a reoccurring basis.

Honestly I feel like this feature would be very convenient and should be offered. I wouldn’t be surprised if we see it offered in the app in the future but at the moment it is not available.

One feature that is available is the ability to change or add multiple recipients to your payments. This may be helpful if you’re using Venmo for something like splitting rent payments or utility bills you can just add two or more people and send one request.

How is Venmo different from PayPal? Which one is better? Why?

I think the main difference between Venmo and PayPal is the fact that with PayPal, your account is tied to your email address while Venmo ties your account to your phone number.

It annoys me to no end when I am dealing with friends who use PayPal. Every time they have to ask me what my PayPal email address is. With Venmo, you never have that problem.

The simplicity and convenience of Venmo is the best part of using it. Venmo is also able to process transactions in 1 business day while it takes PayPal 3-4 business days.

I used to be a loyal PayPal user, but now I only use it for eBay transactions. I use Venmo every opportunity I get among friends. Settling the dinner check among friends just got a lot easier.

No need for everyone to throw down their credit cards anymore. One card pays the bill. Everyone else can send a payment through Venmo. You don’t know how much easier and convenient this is until you try it.

It’s worth noting that Venmo is still in beta mode (not available to the public at large yet), so there’s a lot more that we will know about them as they continue to grow.

While Venmo currently focuses on peer to peer payments and is a superior platform to PayPal in this regard, the only way that Venmo can build a sustainable business with scale is if they are able to take PayPal head-on among SMBs and merchant transactions.

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How does Venmo make money
How does Venmo make money?

I don’t think the social aspects of Venmo will be as prevalent when it comes to those kinds of transactions. The failure of Blippy is evidence of that.

Venmo Features:

  1. Social/visible money transfer
  2. “Better user interface/experience”
  3. Requires both users to be signed up (minus)

PayPal Features:

  1. Private money transfer
  2. Can send money to people without an account (recipient notified and can then sign up to claim the money) (plus)
  3. Charges a fee to pay through credit/debit card (minus)

Shared Features:

  1. Transfer money via smartphones
  2. Free peer-to-peer money transfers
  3. Linked to email and/or phone number
  4. Able to link directly to the bank account (Venmo is reportedly faster than PayPal for withdrawals etc.)
  5. Can view payment/transfer history
  6. Can be used for online retail purchases (PayPal much, much more widely used than Venmo at the moment.)

I may have missed a few things, but that’s a rough comparison.

They offer virtually the same functionality for digital peer-to-peer money transfers. The main difference is probably marketing/design.

  • Venmo is/was primarily just targeting the peer-to-peer market, through sleeker design and social elements.
  • PayPal is older, larger, and isn’t marketing that aspect of itself as much. It is a giant in the online retail world, so p2p is a drop in the bucket to them.

I am a PayPal user and have seen no need to adopt Venmo. Could be biased since most of my friends use PayPal already too.

Splitting checks, travel expenses, and donations have been simple and convenient. For someone who has neither though, I think it comes down to preference/network.

How does Venmo make money?

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