Venmo Business Model: Payments Made Easy
Two college roommates at the University of Pennsylvania, Andrew Kortina and Iqram Magdon-Ismail founded Venmo in 2009. Venmo business model began as a text message based payment delivery stem. However, with an aim of capitalizing on the growing P2P economy, it introduced a platform with an integrated social network, three years later in March 2012.
Braintree, the mobile payment system, in less than six months acquired Venmo for $ 26.2 billion. Later, PayPal bought Braintree for $800 million.
What is Venmo?
Venmo is a peer-to-peer (P2P), free-to-use mobile payment app that allows quick and easy exchange of money between individuals. The app is available both on iPhones and Android phones in the US.
How Does Venmo Business Model Work?
Say bye to the hassle of dealing with banks. Venmo makes it easier. All you need is to connect your bank account to the app for a free transaction. The Venmo functions as a virtual fiscal intermediary only.
Venmo Business Model
Low usage fees and easy functionality make Venmo an exciting mode of payment.
The retailers instead of paying credits or cash payment can pay for merchandise through smartphones. What is more exciting is, it does not involve a third party, and is a cashless system that makes transaction even more convenient for the users.
Venmo has been designed to work as application-based peer-to-peer payment system. It offers ATM services, wiring transfers and is an alternative method for processing checks.
Venmo allows users to:
- Exchange funds
- Cash-out through the linked banking system
- Send charges
- Store funds on Venmo platform
Why Is Venmo Business Model So Popular?
Because it is exciting. Interacting on Venmo is like any other social media site. The use of emojis make the exchange of funds playful.
Is It Too Social?
Your friends on Venmo like other apps can see your activity; like and comment on your transactions. This is why few feel uncomfortable and overly exposed while using the app. But it is how it works.
Is It Secure and Safe for Users?
All-internet-connected applications can be vulnerable to security breaches. Hence, the app maintains high standard of security. The transactions are secured with bank-level security and data encryption. The data encryption technology protect users against unauthorized transactions and stores the users information in secure locations.
As for mobile applications, the users can set up PIN codes and also use touch IDs to secure their transactions.
Despite the measures, the hackers and scammers have circumvented these precautions. People have lost upto $3000. Unfortunately, Venmo does not offer compensation.
Humans are bound to make errors. Make a wrong transaction, and you lose your money.
What Are Its Limitations?
The exciting money-transferring app comes up with certain limitations.
- Currently, it is available to the U.S. users only
- The app can be utilized for personal use only
- The businesses cannot use the app directly
- The final limitation for weekly spending and receiving is $3,000 cap
How Venmo Business Model Monetizes?
Money funded with a Venmo bank account, balance or debit card is free, and there is no fee for it. However, a standard 3% fee is charged over transactions financed with credit card payments. But, the fee originated by the credit card companies is only passed onto consumers.
Venmo generates revenue by charging merchants for every transaction.
The app follows PayPal’s infrastructure and has two different types of income streams.
Smart Payment Button:
The smart payment button with integration into other apps can be utilized for in-app purchases. Back in 2018, Venmo allowed multiple Uber app users to divide the cost of rides and Uber Eats via the Uber app.
Venmo Debit Card:
Venmo debit card is the second source of merchant revenue which directly draws from a user’s Venmo balance.
With Venmo debit cards, the customers can directly transact with brick-and-mortar setups and online retailers. It operates through Mastercard and can be utilized at any business that accepts Mastercard.
This in return, has helped Venmo expand beyond its exclusive P2P platform.
The merchants are charged a 2.9% fee and $ 0.30 per transaction in both revenue-generating streams. Venmo brings huge customers to the companies, hence, they easily pay these higher-than-average rates.
Moreover, the participating companies also get a higher chance of boosting their profiles via Venmo users over their social media accounts.
By the end of the fourth quarter of 2019, Venmo had boasted 40 million. While the projected revenues stood nearly at $300 million only for 2019, its net payments volume grew to $29 billion, signifying a 56% year-over-year climb.
How to Protect Yourself?
Following precautionary measures can help to combat hacking:
- Use Venmo only when exchanging funds with familiar people
- Make sure you don’t store hefty amount in Venmo balance
- Immediately transfer Venmo transactions to linked bank accounts
- Cloak the transaction histories! Change the setting to “private” to opt out of Venmo’s social network or else, your transactions are published on the public feed
Who Are Venmo’s Biggest Competitors?
- Facebook: Facebook allows users to easily transfer money via its messenger function
- Google Wallet: It is the strongest competitor that works similar to Venmo. While Venmo is strictly available in the U.S., it is available in the UK
- Popmoney: This app, unlike Venmo, charges $0.95 fee to send money from a debit card to a bank account.
- Square Cash: Twitter co-founder Jack Dorsey built Square. It does well with business yet has to garner for person-to-person transaction.
- SnapCash: Though not efficient as Venmo, yet it is a medium for transaction with a $250 weekly limit
- Apple Pay/ Android Pay: These popular apps are specific and limited, and don’t offer services as Venmo
As per multiple reports, Venmo is not paying off. But, the leading innovators and directors of PayPal are actively working for enhancing its services, functionality and efforts towards monetization.
Furthermore, the plans to enhance and extend the company growth and its profitable revenue streams are underway, the PayPal CEO said.
A similar cash app to Venmo is Paytm that is popular in India. You can learn more about it here.
Despite its popularity, Venmo is not profitable. However, with great minds working to catalyze the company’s growth and scaling its revenue generation, we can look forward to a bright future.