If you’re a millennial, and send money electronically, you’re likely to use Venmo. The phrase “just Venmo me” has in fact become a colloquial way to insinuate a request for cash.
Since PayPal(PYPL)-Get Report acquired the money transfer app for $800 million under Braintree in 2013, Venmo has been the go-to for many users to quickly send and receive money on their mobile devices.
But as long as you send and receive funds (often with zero transaction costs), how does Venmo take a cut? How does Venmo make money, and is it safe to use in reality?
What exactly is Venmo?
Venmo is a free-to-use mobile payment app that lets users send money and receive it. The app is owned by PayPal and connects to bank accounts or credit cards for users and companies to send and receive funds online, and is currently only available to users within the U.S. The app was created in 2009 by roommates of the University of Pennsylvania Andrew Kortina and Iqram Magdon-Ismail as a text-only money transfer service. However, the startup was released to the public in 2012 as an app to transfer money to iPhone and Android users. Venmo capitalized on the peer-to-peer (P2P) market by allowing users to connect credit cards or bank accounts to the app, and directly send or receive funds on their mobile devices.
Users are expected to connect their bank account to the app to transfer money for free. Small transaction fees are however available for sending money with a credit card.
Venmo’s supported more than $17 billion in transactions as of the third quarter of the company in 2018.
For a social media-like feed displaying public transactions for messages ranging from basic emoji to complete sentences, the money app game has definitely changed.
And, what more -some of the giants in the FANG are noticing. Yes, Venmo the soon compete with Facebook (FB) likes — Get Report, Apple (APPL) and Square(SQ) — Get Report— all of which have or are improving trade capabilities.
Is Venmo social media outlet?
Yet, is Venmo really a type of social media? That may be indicated by user experience.
While the money transfer service might seem all about the cold, hard cash (or, digital receipts anyway), many Venmo users reported using the app for other purposes. Venmo users including Daniella Joy, who declined to give a last name, actually told NBC News earlier this year that the app was morphing into a kind of social site.
“It’s weird that the only way I have an insight into[ my ex’s] life is through his transactions in Venmo,” Joy told NBC News. “I’ve had those moments when I’m curious what he’s been up to, who he’s been out with or if he’s going on any trips and then I’m looking at Venmo.” But Joy isn’t alone-many other people use the site as a secondary social media tool to gather intelligence about their mates.
“In the sense of seeing what people are up to, I just enjoy Venmo stalking,” Luke Miedreich told NBC News.
Nonetheless, given the social media aspect that Venmo tends to have, both banks and customers are increasingly turning to Zelle-a payment app backed by Bank of America (BAC) likes-Get Report, J.P. Morgan (JPM) — Get Fargo Report and Wells (WFC) — Survey.
In a $800 million transaction in 2013, Venmo and PayPal PayPal bought Venmo (which was itself purchased by Braintree for $26.2 million).
Venmo has played a significant part in fintech space since the acquisition. Venmo had about 22.9 million users as of this year, but it still lags behind other comparable devices like Zelle.
Now, the app is free to use and there are some forms of purchases that are free of charge. So how does Venmo go about it?
How does it work with Venmo?
The Venmo app has users connecting to their bank account, checking account, credit or debit cards, which they then use to complete requests to either send or receive money. Venmo users can “request” charges from friends or people in their network (which they can add, similar to Facebook-like social media apps). Once the request is sent, the person charged can either accept or refuse the request (but the request’s sender can also “remind” the person charged with their request). Upon transfer of the funds, users can either keep the money as their “Venmo Balance” in their account, or transfer it back to a bank account or credit card.
Users should write short memos for their requests, as well.
Additionally, Venmo uses an application programming interface (API) to connect payment services to businesses or individuals.
But with a largely free service, how does Venmo still make money, even after its popularity?
How does Money make Venmo?
While Venmo can be used and downloaded free of charge, the company mainly makes its money off transaction fees. If you use your bank account or debit card to connect to Venmo, your transactions are free-but if you use a credit card or are a company using Venmo, you will be charged a 3 percent fee of whatever the total transaction amount is. This is one of the main ways in which Venmo raises money from customers as the company actually does not charge interest on funds.
The business model of Venmo is a peer-to-peer money exchange service that allows users to connect up their forms of payment and share transactions within their network. Venmo only charges the 3 percent fee for normal customers or “end-users” (like you and your friends) if you are using a credit card for your transactions.
In addition, as one of Venmo’s business model’s key revenue-generating features, the company charges companies a 2.9 per cent fee when users use the app to pay. And, in other words, when a customer uses the Venmo API to pay them, companies are paid a 2.9 per cent fee.
Even, Venmo does not actually receive much of the income from PayPal’s parent company-in addition, Venmo does not spend the “Venmo Balance” funds from the consumer. But there may be improvements in Venmo’s investments.
Venmo’s strategy for the coming year is to expand the use of Venmo for customer-to-business transactions, according to The Atlantic last year. In reality, Venmo announced partnerships last year with a variety of apps that included food delivery companies such as Munchery and fast food chains such as White Castle.
In addition, as of July this year, according to Business Wire, Venmo announced its collaboration with Uber which will allow users of the app to pay for Uber and UberEats with Venmo. Together with others like it, this collaboration will help Venmo generate more income through its 2.9 per cent business transaction fee.
Is it healthy for Venmo?
With so much money switching hands on the device, is Venmo safe?
Well, it’s protection has been questioned in part because it’s an internet-based money-transferring operation. In reality, Venmo faced some criticism over user security breaches in 2016. The Federal Trade Commission (FTC) has reviewed concerns while handling sales about the company’s privacy policies.
“Consumers experienced real harm when Venmo did not live up to the assurances it made to customers about their money’s availability,” said Maureen K. Ohlhausen, Acting FTC Chairman. “The payment company has misled customers about how to keep their transaction details private. This case sends a clear message that financial companies like Venmo need to concentrate from day one on privacy and security.” According to the FTC, PayPal finally settled the charges of the FTC after breaching the Gramm-Leach-Bliley Act.
However, Venmo uses bank-grade authentication and encryption to ensure the confidentiality of the accounts of its customers, according to their site. In addition, Venmo lets users build a mobile transaction PIN code to further increase security.
And, Venmo will still not allow the sending or receiving of money from unknown users but can not be responsible for payments made to the wrong person.
But are there any Venmo scams that you should think about?
The most popular Venmo scams include scammers leveraging the lack of knowledge that a consumer has about timing payments. Typical Venmo transactions, for example, may look like they’ve been completed immediately, but it takes a few days to process before you actually receive the funds-leading users who are vulnerable to giving up products before they actually receive the payment in their wallet.
This type of scam also happens on Craigslist where you will be approached by a fake buyer about your products and asked to use Venmo as payment. While it is generally safe to use Venmo for normal payments inside your circle or network (i.e. people you know or communicate with regularly), be careful to use Venmo as a payment system for things like online advertising.