Have you ever been to a bar with friends, and the waiter is so busy with other tables that you don’t feel comfortable asking them to split the bill several ways?
That is, you no longer have to worry about it anymore with Venmo. Venmo is a digital wallet that enables users to send and receive money via the company’s app. Additionally, Venmo users can pay select merchants using the company’s debit card or online (via the Pay With Venmo feature).
Venmo is a mobile payment app for individuals available on smartphones, has a simple user interface, and is extremely easy to use. One can use the app to request money from another user or to send it uninvitedly.
Venmo generates revenue through its Pay With Venmo feature, Instant Transfers, interchange, withdrawal fees, interest on cash, check cashing fees, and affiliate commissions from a cashback program available to debit cardholders.
Andrew Kortina and Iqram Magdon-Ismail founded Venmo in 2009. At the University of Pennsylvania, the two shared a dorm room. That inspired them to create a product that would facilitate transactions while assisting another friend in opening a yogurt shop.
Then, while at a jazz performance, they both considered how great it would be to purchase an MP3 of one of the band’s songs via text message. The final straw for the two was when Iqram came to visit Andrew but forgot to bring his wallet. Resolving the debt was such an annoyance that the concept almost became self-perpetuating.
Since then, the company has experienced tremendous success. Venmo quickly gained popularity among its primarily millennial user base. Venmo’s app is now used by nearly 70 million people each month. Braintree acquired Venmo for $26.2 million in 2012. Then, in 2013, PayPal acquired Braintree for $800 million.
Venmo is a part of the growing trend of smartphones becoming wallets. They are democratizing the ease of transactions.
- Venmo began in 2009 as a peer-to-peer payment platform based on text messages.
- Venmo launched a platform in 2012 that included an integrated social network.
- When sending money via Venmo, the company charges a standard 3% fee but waives it when you make payment with a Venmo balance, a bank account, or a debit card.
- The charge of 3% is not waived off when you send money using a credit card, the 3% fee.
- Around two million online and brick-and-mortar merchants accept Venmo as a method of payment.
What is Venmo?
Venmo is a mobile peer-to-peer (P2P) payment app that enables users to send and receive money. Additionally, the app enables users to pay at selected merchants, split costs with one another (for example, when dining out), or simply communicate.
To initiate a fund transfer, both parties must register as users on the platform. Venmo has a similar feel to Facebook Messenger, allowing users to chat and send emojis.
The Venmo app is linked to your bank account or debit/credit card. This enables them to transfer funds between Venmo accounts. At the moment, Venmo can be used only by individuals who have a bank account or credit/debit card issued by an American financial institution.
As a result, businesses can integrate with Venmo to accept payments via the app. Merchants simply need to change their existing PayPal Checkout configuration and add Venmo as an additional payment method. Grubhub, Uber, Poshmark, and lululemon are all examples of merchant partners.
Finally, Venmo connects a debit card to the app. The card enables users to make purchases in the real world,’ such as at coffee shops and supermarkets. Additionally, users can receive paychecks through the associated account and earn cash back at participating merchants.
How Venmo Works? What is the Business Model of Venmo?
Venmo users can immediately begin exchanging funds with one another after downloading the app and linking their Venmo accounts to their debit card, credit card, or bank account. Venmo acts as a virtual fiscal intermediary.
In other words, You can think of Venmo as a middleman between the two users’ bank accounts involved in a payment transaction.
Consider the following hypothetical situation: Sally accepts Mary’s offer to sell her a bracelet for $50. Rather than using Mary’s bank account, Mary sends the funds to Sally via Venmo, which increases Sally’s account balance by $50 while decreasing Mary’s Venmo balance by the same amount.
Thus, a Venmo balance is primarily a virtual ledger representing funds changing hands without requiring users to execute transactions outside the Venmo platform. Thus, until Venmo deposits the balance into the recipient’s bank account, the money is technically not in the recipient’s possession.
What is the History of Venmo?
Andrew Kortina and Iqram Magdon-Ismail founded Venmo in 2009. The company was founded in Philadelphia but relocated to New York shortly after that.
Kortina and Magdon-Ismail met in 2001 at a University of Pennsylvania freshman event. Both earned a degree in Computer Science, but Kortina switched to Creative Writing and Philosophy later in life.
The pair founded their first business during their senior year of high school. My College Post was indeed a classified ad website targeted specifically at college students. Both of them continued to experiment with various ideas over the years until adulthood caught up with them.
Kortina relocated to New York and became one of the company’s first engineers (founded by networks). Magdon-Ismail, meanwhile, worked as a software developer for Ticketleap in Philadelphia.
Magdon-Ismail visited Kortina in New York in 2009. Unfortunately, he forgot to bring his wallet, forcing Kortina to foot the bill for the weekend. Fortunately, this minor incident catalyzed the creation of Venmo.
Venmo is a portmanteau of the Latin verb vendere (“to sell”) and the suffix “mo,” which stands for mobile. Venmo was initially created to enable users to send or receive payments via SMS. Their inboxes were quickly flooded with amusing messages accompanying those payments.
The duo recognized that the social aspect of Venmo was what drew users in. They integrated a social feed (similar to Facebook’s) that allowed users to see why their friends have been exchanging money. Magdon-former Ismael’s boss at Ticketleap invested in the business as the company’s first angel investor.
In 2010, the team raised their first round of venture capital funding with RRE Ventures, beta works (Kortina’s former employer), Lerer Ventures, and Founder Collective. The $1.2 million seed investment enabled both founders to focus exclusively on Venmo.
Venmo remained in private beta until 2012, so for the first two years of full-time operation. The app was initially only accessible via invite, which allowed the founders to focus exclusively on developing the best product possible.
That strategy undoubtedly paid off handsomely. Venmo launched in March 2012 and was already on track to facilitate $250 million in payment exchanges that year. Venmo’s team has grown to over 20 members in the interim.
A few months after the initial public offering, Braintree announced the acquisition of Venmo for a total of $26.2 million. Braintree, a former FinTech darling, was in charge of the backend payments for companies like Uber and Airbnb. PayPal acquired Venmo as part of its strategic initiative to build a strong presence in the mobile payments space.
PayPal announced just over a year later, in September 2013, that it would acquire Braintree (along with all of its underlying assets, including Venmo) for $800 million in cash. Both Braintree and Venmo have a strong developer and consumer following, respectively. This resulted in PayPal allowing both companies to operate independently.
Kortina and Magdon-Ismael both opted out of Venmo in 2014. At the time, reports stated that the founder appeared to be growing increasingly disengaged from meetings. Mike Vaughan, Venmo’s chief operating officer, assumed the role of general manager.
Certainly, the change in leadership did not affect the company’s growth. Additionally, being a part of PayPal’s ecosystem enabled them to access expertise and resources they would not have had access to otherwise.
For example, in 2015, Venmo launched its Pay with Venmo feature, which enabled users to pay with Venmo at any PayPal-partnered merchant. Venmo, as one of the FinTech industry’s titans, gained access to millions of new merchant partners as a result of this move.
Nonetheless, the company has encountered its share of controversy over the years. Numerous users filed complaints alleging that others had duped them.
Additionally, Venmo has prohibited certain transactions due to the use of inappropriate terms such as Idek, which most internet users refer to as “I have no idea.” Regrettably, it is well-known in Bangladesh as a major terrorist organization.
Others have expressed concern about Venmo’s data being publicly accessible. Do Thi Duc, a Berlin-based researcher, published a report in 2017 demonstrating how simple it was to retrieve data from the company’s API. She discovered that numerous people were divorcing, exchanging money for drugs, or being caught cheating on their partner.
Venmo has grown to be among the largest peer-to-peer payment systems in the United States, trailing only Zelle and Square’s Cash App. Venmo now processes close to ten billion dollars in payments each month.
Nearly 70 million people regularly use the app. Additionally, Venmo now employs over 1,000 people across four offices in the United States.
How does Venmo Make Money?
After creating a Venmo account, you’ll be able to enter payment information, such as a bank account in the United States or a debit/credit card, and begin sharing.
Because both creating an account and using the Venmo app is free, how do they make money? Fortunately for them, the company has developed a strong business model and identified several revenue streams.
Credit Card Fees are the first. Venmo provides users with their account system, and there are no transaction fees if they choose to use their Venmo balance.
Similarly, when users choose to pay with a debit card or their own linked bank account, the same applies. Venmo may take a small percentage when users pay with a credit card. Venmo charges credit card users 3% of the transaction’s total value.
Venmo generates revenue through its Pay With Venmo feature, interchange and withdrawal fees, Instant Transfers, check cashing fees, interest on cash, and affiliate commissions from a cashback program available to debit cardholders.
Let’s take a closer look at each of these revenue streams in greater detail below.
Venmo Pay Feature
Pay With Venmo enables users to make purchases using their Venmo account at selected merchant partners. Partners include Foot Locker, Forever21, and Urban Outfitters, among others.
When users make a payment at one of those handpicked merchants, a fee is added to the total amount of the order. Venmo charges merchants 2.9 % of the transaction amount in addition to $0.30 per transaction.
The fee structure is consistent with what payment processors such as VISA or Mastercard charge.
Merchants are ready to pay the fee because it expands their customer base. Traditional banks are frequently not integrated into modern-day apps, leaving Venmo as the only payment option in some instances.
Additionally, users’ transactions will be visible in Venmo’s social feed (unless users opt-out publicly sharing that information). It increases merchants’ exposure and can serve as a valuable marketing channel.
Withdrawal & Interchange Fees
Venmo has been offering its Mastercard-branded debit card to all users since 2018. Users can use the card to make purchases in the real world and pay them with their Venmo balance.
Users who are connected to the app can, for example, use their card to pay for dinner and then split the bill with friends.
The card’s transactions will also appear in the user’s social feed if this option is enabled. This, like Pay With Venmo, can be used as a marketing channel for businesses.
Venmo makes money by charging merchants interchange fees on the card. In all likelihood, these fees will be split between Venmo as well as Mastercard. Customers must also pay a $2.50 ATM Domestic Withdrawal Fee and a $3.00 Over the Counter Withdrawal Fee when withdrawing cash.
Instant Fund Transfers
Venmo revealed in 2019 that it would allow users to move money to their bank accounts instantly. Normally, it takes between one and three business days to withdraw money from a Venmo account and move it to another bank.
Venmo charges a 1% fee for all transactions. The minimum fee is $0.25, and the limit is $10. The funds should be available in the user’s bank account within 30 minutes.
Additionally, the debit card offers a variety of cashback rewards at select merchants. Chevron, Papa John’s, Target, and Dunkin’ Donuts are just a few of the companies that have partnered with us.
Cashback programs credit the customer’s account with a certain percentage of the total purchase price. This incentivizes customers to conduct business with these merchants.
After that, the partner compensates the advertiser, in this case, Venmo, for referring the customer. Venmo’s profit margin on each purchase is determined by the total volume of transactions as well as the terms of the partnership agreement.
Cash A Check
Venmo introduced a new feature called Cash A Check in January 2021. Users can use the feature to cash in pay and government stimulus checks, as the name implies.
Users must have location services enabled, either through Direct Deposit or through the use of a Venmo Debit Card, and have a verified email address.
Users then take a photo of the check and submit it to Venmo for review. Venmo then deposits the funds into the user’s account if they are approved.
Venmo charges 1% for this verification service. However, there is a condition that you must deposit a minimum of $5.
Interest on Cash
Venmo, like any other bank, uses the funds in its accounts to lend to other institutions, including other banks.
They are then paid interest by these enterprises (also called Net Interest Margin). According to Statista, the net interest income for all banks in the United States was 3.35 percent in 2019.
Who are Venmo Competitors?
While Venmo is undoubtedly the most popular payment app, it is far from the only one. The following is a list of Venmo’s primary competitors.
- Apple Pay/Android Pay: While these apps are popular, they are significantly more limited than Venmo and serve a much narrower purpose.
- Google Wallet: This is Venmo’s primary rival and the most similar app. They operate in a similar manner. The primary distinction is whether Google Wallet is available in the United Kingdom.
- SnapCash: Consider SnapCash to be similar to Snapchat, but for money. There is no fee associated with this service, but the weekly cap is $250. SnapCash is not as efficient as Venmo, as transactions can take several days to complete.
- Popmoney: Like Venmo, this app charges $0.95 to send money from a debit card to a bank account.
- Facebook Pay: Facebook recently announced the launch of its own money transfer service via its messenger application. Facebook Pay enables users to send money as easily as they would a test.
- Cash Square: Cash Square was founded by Jack Dorsey, co-founder of Twitter. It is popular with businesses but has yet to impact the world of person-to-person transactions significantly.
What is the Social Side of Venmo?
Venmo has dominated the peer-to-peer payment market by making money transfers enjoyable and interesting. Users can spice up the exchange by including emojis when describing the traded items.
For instance, if one friend pays for his friend’s glass of wine, the friend can send a Venmo payment along with a wine glass emoji as a playful gesture.
“This eliminates the awkwardness associated with asking a friend to pay their share of the bar tab, uniting the social and financial aspects of the transaction,” Venmo spokesman Josh Criscoe explains.
Why is Venmo so Popular?
Venmo’s popularity as a payment app is enormous, and the primary reason appears to be that it’s more enjoyable to use than other apps.
The app allows users to interact with one another in the same way they would on a social media site. The app makes extensive use of Emojis.
Because exchanging or requesting money can be awkward, playful, and lighthearted transactions can help alleviate any tension.
Is there any limitation in Venmo?
Venmo seems to be an excellent all-around method of money transfer, but it may have certain drawbacks. Venmo’s primary drawback is that it is only available in the United States.
No transactions can be conducted outside the country or with an individual who is not a US citizen. Venmo is often limited to personal use.
Businesses cannot use the application directly (Of course, business owners can use it for certain things). The final restriction is weekly spending and receiving a maximum of $3,000 per individual. Venmo can be an excellent method for landlords, but this could put a wrench in the works.
Is Venmo too Social?
Venmo operates under the same concepts as another social media site, with your actions visible to those with whom you are “mates” inside the app. This is not to everyone’s liking.
Not only can other Venmo users in your contacts list view your transactions, but they can also like and comment on them, just as they would on, say, Facebook.
Venmo has been dubbed a teasing and unsettling forum by others. For those who feel too vulnerable and uneasy about using the app, the simplest option is to stop using it simply.
Although the app is extremely convenient, the traditional methods continue to exist and have not yet been supplanted by technology.
What is the Venmo Funding, Revenue, and Valuation?
Venmo raised a total of $1.3 million in three funding rounds, according to Crunchbase. Accel, Greycroft, Founder Collective, and RRE Ventures are among the company’s companies.
When Braintree acquired Venmo in 2012, the company was valued at $26.2 million. A year later, PayPal paid $800 million for Braintree. The amount of the $800 attributed to Venmo was not disclosed.
PayPal has chosen not to disclose the value it places on Venmo at the moment. Rather than that, Venmo’s valuation has already been factored into PayPal’s market capitalization, which currently stands at $220 billion.
PayPal CEO Dan Schulman mentioned that he expects Venmo to generate revenue of approximately $900 million in the fiscal year 2021.
Is Venmo Safe?
Security breaches can occur in any application that is linked to the internet. Venmo and other sites that are directly connected to customer bank accounts, as a result, must adhere to the strictest security requirements.
Venmo protects users from unauthorized transactions by encrypting their data and storing it on protected servers. Venmo users can also create PIN codes for mobile apps via the Venmo website.
Regrettably, hackers and scammers have evaded these safeguards. Hackers can easily move a user’s Venmo balance to a new bank account once they gain access to their account.
Additionally, by modifying the user’s associated email address, hackers may reroute a user’s transaction alerts, keeping them in the dark before the bank notifies them of balance changes, which could occur months after robberies occur. Venmo users have reported having lost up to $3,000 in funds.
How to keep your Venmo Account Safe?
To prevent hacking, users should take the following precautions:
- Never keep a large sum of money in your Venmo balance.
- Move Venmo transactions immediately to connected bank accounts.
- Utilize Venmo solely to exchange funds with familiar individuals.
- Change the setting to “personal” to opt-out of Venmo’s social network and obfuscate transaction histories. Otherwise, Venmo’s default setting for new accounts, “public,” allows the app to post transactions to its public feed.
Future of Venmo and Banking
Venmo made a wise move by entering the direct payment market. Cash App and Zelle are two additional notable players. Square, as previously mentioned, owns the cash app.
Zelle quickly took the market after its release. The technique of Zelle is very special. They are looking for banks and credit card unions to join their app.
It enables you to submit direct payments quickly and easily without requiring the recipient to have the same bank as you. Zelle is saying that their protection is superior to that of the other men.
The future will reveal.
Will there be new ones? Certainly.
Can Venmo, Cash App, and Zelle be used to transact in digital currencies such as Bitcoin or Ethereum in exchange for goods and services?
That is imaginable.
Venmo and Cash App, in my opinion, are a way to circumvent banks. There will be no need to visit a physical (or even online) bank to open a checking account.
You’ll be able to submit and receive money quickly and easily through your smartphone.
Consider the addition of a debit card that you can use to withdraw funds directly from your cash balance.
Why would you need a bank if the same transactions can be completed digitally?
The future will reveal.
Updates about Venmo
Venmo announced a collaboration with Uber in July 2020, enabling users of the app to pay for Uber and UberEats through Venmo.
Venmo’s 2.9 percent business transaction fee can benefit from this relationship.
Without a doubt, the market is crowded and extremely competitive.
Although Venmo is one of the most popular peer-to-peer payment apps, remaining a market leader requires successful expansion.
They must continue to pursue additional purchases at points of sale aggressively.
We’ll have to wait and see what the future holds for our Venmo mates.
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