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Technology has advanced tremendously over the last two decades. You don’t need to go to a bank to make payments. There are many mobile apps through which you can send money to your friends and family with just one click.
One of such apps that lets you transfer and receive money from your friends and family is Venmo. But how does it generate revenue when most of the transactions are free?
Let’s look at Venmo’s business model in detail.
Venmo is one of the largest peer-to-peer payments apps in the United States. Users can transfer each other money just via phone, and they can even pay their merchant partners. A Venmo User can even use the app to split their costs and bills between them.
One of the unique qualities of this app is that users can socially interact with each other. They can chat with one another and even send emojis and stickers. Users can even see their friend’s transactions in their activity feed.
It was founded in 2009 by two roommates from the University of Pennsylvania as an SMS-only money transfer service. Eventually, in 2012, Venmo became an easy-to-use mobile app through which people could transfer money.
You need to download the Venmo app from Google PlayStore or Apple Store to get started. Then, you simply need to register yourself on the Venmo app. It will allow you to link your credit or debit card with your Venmo account. Once that is done, you can easily send and receive money from other Venmo users.
To send money to someone, you need to tap on the request button in the Venmo app. Then, it will ask you to enter their name and email address. If you are the receiving party, you can keep that cash in your Venmo wallet or transfer it back to your linked bank account. However, it will take two to three business days to transfer money from Venmo to your bank and vice versa. Users can opt for Instant Transfer but must pay a fee of 1.75%.
Users can transfer money to their friends and use it for business payments as well. Businesses and firms can collaborate with Venmo to accept payments via the app. Merchants who are already partnered with PayPal have to add Venmo to their configuration. Some notable merchants of Venmo include Uber, Lululemon, Poshmark, Grubhub, etc.
Now, users can even buy different cryptocurrencies on the app. Some of them include Bitcoin, Ethereum, Litecoin, etc. Also, Venmo has launched its own debit card. This card is connected to the app, and it allows users to make purchases in the physical world. For example, you can use it to pay your grocery bills.
Venmo makes money by charging a fee from people who use its “Pay With Venmo” feature. It also earns money by charging fees on every instant transfer, interchange and withdrawal,and cryptocurrency fees. It also generates revenue by charging users for encashing a check and lastly through affiliate commissions.
Pay with Venmo
Users can pay Venmo’s merchant partners using the app. Some notable Venmo partners include Urban Outfitters, Uber, Foot Locker, etc. Venmo will charge a small fee to its merchant partners whenever a user pays via Veno to them. It charges a 1.9 percent commission with $0.10 as the transaction fee.
Merchants agree to pay because Venmo brings a new set of customers. Traditional banks do not have such easy-to-use payment apps. Additionally, any user’s friends and family can see their transactions in the activity feed, giving businesses another opportunity to market themselves.
Users can transfer money from their Venmo wallets to their respective bank accounts. It usually takes two to three business days for that transfer. However, users can opt for Instant Transfers, and the app will transfer the funds instantly into their respective bank accounts.
It charges 1.75 percent as its Instant Transfer fee, and the maximum fee can be $25. If you don’t want to pay any price for instant transfer, you would have to wait for two to three business days to transfer your money back into your bank account and vice versa.
Venmo has launched its own debit by partnering with Mastercard, and the Venmo credit card is powered by Visa. Through these cards, customers can pay in the ‘real world’ like paying in a cafe, buying groceries, etc. It charges interchange fees from the merchants whenever a customer uses its card. Later, the fee is divided between Venmo and MasterCard.
Users are charged a withdrawal fee when they want to take out cash from the ATM. The charges range between 11.99 percent and 20.99 percent in APR (annual percentage rates) in case of any overdue or low credit score on the card balance.
Venmo also has a feature of Cash A Check, wherein users can use Venmo to encash checks. Users need to turn on their location mode, and they should also have the direct deposit on or own a Venmo Debit Card with a verified email address to avail of the check service.
Users have to click a (clear) picture of the check and upload it over the app. Venmo will review the check, and if it is approved, it will transfer the money into your bank account. It charges 1 percent as a fee for the verification service. Also, it charges a fee of 5 percent for non-payroll and non-government checks.
On the Venmo’s platform you can also trade cryptocurrencies like Bitcoin, Bitcoin Cash, Ethereum, and Litecoin. It makes money by earning transaction fees on every crypto trade. Its fee structure is mostly in line with other cryptocurrency exchanges like Bimane, FTX charge, etc.
It also earns money through the spread of the difference between the market price it receives from its trading partner, Paxos, and the exchange rate of dollars and crypto assets shown to the customer.
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Venmo has raised a total of $1.3 million over three rounds, reports Crunchbase. It is funded by 11 investors, including Accel, Greycroft, Lerer Hippeau, RRE Ventures, Founder Collective, etc.
In 2021, Venmo was acquired by Braintree for $26.2 million. As of now, Venmo is part of PayPal. The valuation of Venmo is not disclosed by the parent company. It is estimated that, in 2021, Venmo generated revenue of $850 million.
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Venmo was founded by Andrew Kortina and Iqram Magdon-Ismail in 2009. Kortina and Ismail were college roommates in the University of Pennsylvania. During their senior year, they had even started a website dedicated to college students called ‘My College Post.’
After graduating from college, Kortina worked at URL shortener bit.ly, and Ismail worked with Ticketleap as a software developer.In 2009, one fine weekend, they decided to meet and hang out. Ismail forgot to carry his wallet, and because of this incident, they came up with the idea of Venmo.
They finally designed a software service through which people could transfer each other money via SMS. Soon after, they created a mobile app around it. Not only was this a more convenient way of transferring money, but the app also connected friends. A person could see, for what reasons their friends and family were exchanging money, in their feed.
In 2010, Venmo finally got its first venture capital funding from RRE Ventures, Betaworks, Lerer Ventures, and Founder Collective and raised $1.2 million. Then they started working on Venmo as a full-time project. For two years, Venmo was a members-only community. In 2012, Venmo released its app in public, and it could process up to transactions of $240 million.
Soon after the Venmo app’s public launch, Braintree, a fintech company, acquired it for $26.2 million. Within a year, Braintree and its other subsidiaries, including Venmo, were acquired by PayPal Holdings Inc. for $800 million in cash. In 2014, Kortina and Ismail left Venmo due to some disagreements with the company. But that did not deter Venmo from growing big.
In fact, PayPal’s ecosystem helped it grow faster. PayPal gave access to its large base of partnered merchants; now, users could pay through Venmo to these merchants. Due to this, Venmo transaction volume started increasing, and today it is one of the largest peer-to-peer mobile payment apps which can process transactions of more than $10 billion.
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Apple has also launched its very own mobile payments app. People who own Apple iOS devices can send each other money through this app. They just need to link their user ID with a bank account or debit and credit card to get started. It has a strong market presence in the UK and Australia. Clearly, it is one of the biggest competitors of Venmo.
Google Pay is one of the leading mobile payments apps across the world. It is a digital wallet through which users can easily transfer money to each other via phone. It is available both on iOS as well as android devices. As of 2021, the app is available in 42 countries with over 150 million users.
Zelle is a peer-to-peer transfer app through which users can send money to each other via their phones. Unlike Apple Pay, Google Pay, and Venmo, Zelle is owned by 30 major US banks, including Bank of America, Chase, Citi, Wells Fargo, etc. It does not charge any fees like instant transfer fees from its users.
Cash App is a P2P (peer-to-peer) contactless payment app that allows people to send and receive money quickly via mobile phones. It is owned by Block, Inc., a publicly traded company previously known as Square, Inc. Also, just like Venmo, it has diversified itself, and now users can even buy cryptocurrencies on the app. Users can file their taxes through its Cash App Taxes feature.