How Does Venmo Make Money?

by Chris Kolmar
Business Models - 8 months ago

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What is Venmo?

Have you ever been at a restaurant with some friends and the waiter is crazy busy with other tables and you don’t feel comfortable asking them to take the extra time to split the bill several ways? Well, with Venmo, you no longer have to worry about such things. Venmo is a person to person mobile payment app that is available on smartphones, has a user-friendly interface and is super easy to use. With the app, one can both request money from another user or send it unsolicited.

Venmo was founded in 2009 by Andrew Kortina and Iqram Magdon-Ismail. The two were college roommates at the University of Pennsylvania. They were initially inspired to create a product that would make transactions easier while helping another friend of theirs set up a yogurt shop. Then, at a jazz show, they both thought about how great it would be to be able to buy and MP3 of one of the band’s songs right over text message. The final straw that led the two to build Venmo was when Iqram came and visited Andrew, but forgot his wallet. Settling the debt was such an annoyance that the idea almost cemented itself.

Since then, the company has had major success. In 2012, Venmo was bought by Braintree for $26.2 million. Then in 2013, Braintree was bought by PayPal for $800 million. Venmo is part of the movement that is turning smartphones into wallets. They are making ease of transactions more accessible to everyone. But the question has to be asked, At what cost?

How Does Venmo Make Money?

After you create a Venmo account, you’ll have the ability to enter payment information, such as a U.S. bank account or a debit/credit card and get sharing. Creating an account as well as using the Venmo app is free, so how do they make any money? Luckily for them, the company has developed a strong business model and found a few ways to make some dough.

The first is Credit Card Fees. Venmo offers users its own account system and if they choose to use their Venmo balance, then there are no transaction fees. The same goes for when users choose to pay via a debit card or with their own linked bank account. It is when users pay with a credit card that Venmo can take a small percentage. Venmo charges 3% of the total value of the transaction with credit cards.

The second way they make money is Merchant Fees. Paypal purchasing Venmo has really helped in this department. All merchants that accept PayPal payments, now accept Venmo as well, and there are fees associated with that. The merchants that are accepting those payments pay around 3%, like with the credit cards.

Who are Venmo’s Biggest Competitors?

While Venmo is definitely the most widely used payment app, it definitely isn’t the only one out there. Here’s a list of Venmo’s biggest competitors.

  • Google Wallet: This is Venmo’s biggest competition, as well as the most similar app. They work pretty much the same. The main difference if Google Wallet is available in the U.K.
  • Apple Pay/Android Pay: These apps, while popular, are far more limited than Venmo, and treat a far more specific purpose.
  • Popmoney: This app is also very similar to Venmo, but charges a $0.95 fee to send money from a debit card to a bank account.
  • SnapCash: Think SnapChat but for money. There is no associated fee but the weekly limit is $250. This isn’t as efficient as Venmo, as it can take several days for transactions to clear.
  • Square Cash: Square was built by Twitter co-founder Jack Dorsey. It is big with businesses but is yet to make a splash in the person to person transaction world.
  • Facebook: Facebook recently launched its own money transfer service through its messenger function. This allows users to transfer money as easily as sending a test.

Does Venmo Have Any Limitations?

Venmo seems to be an all-around great way to share money, but it does have some limitations. The main limitation of Venmo is that it is U.S. only. No transactions may be done outside of the country or with someone from outside of the country. Another limitation is that Venmo is only available for personal use. Businesses cannot directly use the app (Of course business owners could use it for certain things). The final limitation is a $3,000 cap on weekly spending and receiving. Venmo could be an excellent tool for landlords, but this can sort of throw a socket wrench in that plan.

Why is Venmo so Popular?

The popularity of Venmo as a payment app is massive and the main reason seems to be because it’s more fun to use than other apps. Users can interact with each other through the app just as they could on a social media site. The use of Emojis is huge in the app. Exchanging or asking for money can sometimes be uncomfortable, so the playful and lighthearted exchanges can really help ease any tension.

“This takes the awkwardness out of asking your friend to pay back their portion of the bar tab, marrying the social element and the financial element,” explains Venmo spokesman Josh Criscoe.

Is the Venmo App Safe and Secure for Users?

With heightened tech like Venmo comes heightened tech to hack into such services and steal confidential information. Since the app’s creation, it has made sure to use only the highest standard of security. Venmo uses bank-level security and data encryption to secure transactions. Even with the apps heavily advertised security features, worries still arise with users about it. Cases of hackers have surfaced which only fuels the fire of doubt surrounding the apps security prowess.

The main problems with security lie in the realm of human error. There are numerous cases of instances where sums of money have been sent to the wrong person (there are a lot of John Smiths out there) and in that situation, there is no real way to get the money back, unless of course whomever the money is accidentally sent to is feeling particularly forgiving.

Is Venmo Too Social?

Venmo has adopted the same principles as a social media platform, wherein anyone who you are “friends” within the app can see your activity. This doesn’t sit well with everybody. Other Venmo users in your contacts list are not only able to see your transactions, but are also able to like them and comment on them, as they would be able to do on, say, Facebook. Some have described the Venmo platform as mocking and unnerving. The simple solution for people who feel like they are too exposed and are uncomfortable using the app is to just not use it. Of course, the app is really convenient, but the old ways still exist, and for now, have not been weeded out by this technology.

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