Venmo is an app that allows you to transfer funds quickly to friends.
It’s a peer to peer app owned by parent company Paypal.
“Just Venmo me.”
I’m sure you’ve heard it.
In this article we’ll discuss how does Venmo make money.
Banks can take 1-3 days to transfer money.
Venmo allows users to instantly transfer cash without using banks.
Getting Venmo to make money has been a challenge for PayPal.
Especially as Square has quickly found ways to monetize its Cash App. (which I also like and use in addition to Venmo).
PayPal has copied a number of strategies from Square.
This includes instant withdrawals to bank accounts and a prepaid card linked to the account.
PayPal has also made progress bringing merchants to its Pay with Venmo feature, which works a bit like PayPal’s core feature.
History of Venmo
Venmo is an app that was founded in 2009 by a pair of college roommates.
It was first created to be able to send payments through text messages.
In 2012 they released an iPhone and Android app to the public.
One of the keys to its growth was allowing users to directly transfer cash to each other’s devices.
Then you could link the app to a checking account to transfer funds.
Venmo definitely simplifies cash transfers between people and businesses.
It’s got an added twist of social networking.
Is Venmo a social media network?
I don’t think most would include it, but it definitely makes paying your friends back a bit more fun.
There’s a public ledger for what you pay your friends for.
If you’re new to this, just know that anything you write will be public by default.
I made this mistake when jokingly paying my wife for some ‘things’.
If you’d like to make your payments private, you can do so (article here if you prefer).
Venmo Allows You To:
– Split bills
– Send money to different people
– Pay over 2 million merchants
– Request Money from another person
Venmo quickly caught the attention of a company called Braintree.
In 2012, Braintree purchased Venmo for $26.2 million.
Then in 2013, Paypal bought Braintree for $800 million.
So, by default, Paypal owns Venmo.
They are making transactions easier for everyone.
But how does Venmo make money?
Venmo Business Model
The mobile app is a clever business model and is used mainly by younger users.
One of the main reasons for Venmo’s success is because the Venmo business model was one of the first to solve the issue of splitting bills.
Before Venmo, users had to have cash (exact change even!) in order to repay their friends.
Or they had to find an ATM.
Or they had to write them a check.
Can you imagine a world without Venmo?
Besides helping its users solve simple problems like splitting bills, the app also includes a social newsfeed that lets them share the transfer history of their friends in a fun way.
How great is that?
No more awkward moments reminding your friend to pay.
It’s all taken care of within Venmo (or even the Square Cash App!)
But how does Venmo make money?
How Does Venmo Make Money?
Venmo is free to download and use, so Venmo makes its money from transaction fees.
If you’re using your checking account to attach to Venmo, your transactions are free.
You’re able to transfer money at no charge.
But if you need (or just want) money to transfer instantly, there is a 1% fee for this (minimum of a $.25)
If you’re using a credit card or are a business using Venmo, there is a fee regardless of the total value of the transaction.
This is one of the main ways Venmo makes money off of users since the app doesn’t currently charge interest on funds.
If you need to pay with a credit card, Venmo charges a 3% fee for the card that you have tied to Venmo.
The most revenue is made from business charges.
Venmo charges businesses a 2.9% fee when consumers use the app to pay.
This would be similar to what a business would pay in fees if you were to use a credit card to pay them.
Venmo currently doesn’t make up that much of parent company PayPal’s revenue, but this is how Venmo makes money.
Paypal’s revenue from Venmo will increase in the future as more folks get used to quickly swapping money with apps.
Want to get see the fees directly from Venmo? See how Venmo makes money from its fees here.
The Future of Venmo and Banking
Venmo was smart to jump into the direct payment space. Cash App and Zelle are two other significant players.
The cash app, which we’ve already discussed, is owned by Square.
Zelle has quickly come on the scene. Their strategy is a bit different. They are targeting banks and credit unions to be a part of their app.
It provides a simple way to quickly send direct payments without the other user’s need to have the same bank as you.
Zelle is arguing that they are more secure than the other guys.
Time will tell.
Will there be more? For Sure.
Will Venmo, Cash App, and Zelle be a tool used to trade digital currencies like Bitcoin or Ethereum for products and services?
I believe that what Venmo and Cash App are doing is a way to navigate around banks.
There will no longer be a need to go into a brick and mortar (or even online) bank and set up a checking account.
You will be able to send and receive money directly with your app quickly.
Look at the new inclusion of a debit card that you can use directly from your cash balance.
Why will you need a bank if you can perform the same transactions digitally?
Time will tell.
As of July 2020, Venmo announced its partnership with Uber which will allow users of the app to buy Uber and UberEats with Venmo.
This partnership could help Venmo generate more income through their 2.9% business transaction fee.
Needless to say, the marketplace is saturated and highly competitive.
While Venmo is one of the foremost successful P2P payment applications, staying on top during a dominant market player depends on successful expansion.
They have to continue making a play for more transactions at points of sale.
We’ll see what the future holds for our friends at Venmo.
Are you interested in referring Venmo to your friends and getting paid for it?
If so see our article on affiliate marketing for beginners.
Interested in seeing what other tools we use to run our business? You can see them here.