Venmo is an increasingly popular payment and money transfer app among youngsters that was started back in 2009. Only available in the United States, Venmo allows its users to send money to their friends quickly, split bills for tickets, dinner, or movies, and pay for services at merchants through its app or debit/credit card.
One of the reasons behind Venmo’s meteoric rise in popularity is its freemium business model that allows people to use its most basic services free of charge.
Venmo makes money by charging for some of its services such as instant transfer (fund withdrawal), ATM withdrawal, credit card processing, cryptocurrency transactions, and Merchant fees.
Below, we will explore how Venmo works and how exactly does it make money. We will also focus on specific issues that Venmo users are currently facing.
What is Venmo? And How Does It Work?
Image Courtesy: Venmo.com
Venmo is a peer-to-peer, or P2P, mobile payment service that allows fund transfers among its users. It can also be used to make payments at selected merchants and make split or shared purchases. Venmo is a fully owned subsidiary of online payments giant PayPal.
Unlike other mobile wallets and payment services, Venmo has a unique feature that is usually found in social networking platforms. Whenever a user makes a payment or transfers funds, the transaction details (except for the amount) are updated on the Venmo feed, divided into three categories: ‘private,’ ‘friends only,’ and ‘public.’
Users can choose on which feed their transactions should appear based on their privacy preference. You can make your feed visible to friends only or choose them to be completely private. The latter might be a better option for security reasons. Anyhow, you can also interact with other users through comments, sharing emojis, and likes on those feeds.
Venmo services are available only to individuals who are staying in the United States with a U.S registered cell number and a bank account. You can sign up for a new account either on the Venmo app or website using a valid email address.
Venmo balance is where you store and manage funds to make online payments. You can add money into your Venmo balance from a verified bank account that takes a minimum of three working days to process.
However, Venmo allows you to transfer funds to other Venmo users without having money on your Venmo balance, as such transactions can be directly funded by a verified payment source (bank account). In case you ever want an instant money transfer to your Venmo balance, it’s best to ask for funds from your Venmo friends.
Venmo MasterCard or Debit Card
Venmo launched a physical debit card (based on MasterCard) for its users in 2018. It is similar to a traditional bank debit card in many ways. You can use the Venmo debit card anywhere MasterCard is accepted with a daily fund withdrawal limit of $400. Using Venmo MasterCard at MoneyPass ATMs is free of charge.
By default, the debit card transactions are funded by your Venmo balance. In case you have insufficient funds on your Venmo balance for a purchase, you can use the debit card ‘reloads’ feature. If enabled, it will try to cover the remaining cost of your purchase by pulling funds directly from your bank account.
Venmo Credit Card
Venmo users can apply for a personalized credit card directly from the app. A Venmo credit card allows you to make contactless purchases and earn more rewards and cash backs on almost every payment without any annual fee.
You can keep track of your credit card transactions, cashback/rewards, payment splits with Venmo friends, and even set Autopay from the app. The Venmo card also comes with an embedded QR code to help you settle finances with your friends anywhere.
Venmo For Business
Businesses can easily integrate Venmo into their existing payment environment to accept payments from customers. To do this, merchants simply need to set up a Venmo business profile that will be completely separate from your personal one but linked to your existing account.
Another way to accept Venmo payments for business is through PayPal online checkout process (where users can opt for Venmo payment).
According to Venmo’s official website, more than two million merchants accept Venmo payments for their services.
How Does Venmo Make Money?
Venmo is a free-to-use application, for the most part. There is no charge for creating a new account, and you can use its most basic feature, that is, sending money to other Venmo users without paying any fee. However, businesses need money to survive.
Venmo generates revenue by charging some of the services it provides. It includes instant transfer (fund withdrawal), ATM withdrawal, credit card processing, cryptocurrency transactions, and Merchant fees.
Instant Transfer Fees
There are two ways you can transfer funds from your Venmo account to a selected bank account. The first option is a standard withdrawal that requires no additional fee for fund transfer but takes 3 to 5 working days to process.
Another way funds can be transferred from your Venmo account to a bank is through ‘Instant Transfer.’ It’s much faster than standard withdrawal, as the entire process usually takes less than a day. You need to choose the instant transfer option if you want Venmo money into your bank in a hurry.
However, for an instant transfer, you have to pay 25 cents or 1% of the total amount of the transferred fund. The maximum fee is capped at $10.
ATM Withdrawal Charges
Venmo charges a fixed fee of $2.50 per withdrawal on non-MoneyPass ATMs across the United States. You may have to pay additional fees imposed by the ATM owner. There is no withdrawal fee on the MoneyPass ATM network.
If you’re making over-the-counter cash withdrawals in any traditional bank or other financial institution, you have to pay $3.00 per withdrawal.
Requesting and acquiring the debit card, ordering a replacement, and automatic reloads are free of charge. On a different note, in case of automatic reloads, you must always ensure that your selected bank account has enough balance so that you don’t incur unnecessary overdraft fees or even transaction decline.
Venmo also charges merchants who accept payments through the Venmo platform. They pay a fixed fee of 10 cents per transaction with 1.9% of the total transaction amount. From July 2021, this fee structure also applies to personal Venmo profiles who senders identify as ‘for goods and services.’
Venmo Credit Card Interest Rate and Charges
The minimum interest charge on a Venmo credit card is at least $2. The transaction fees on cash advances are either 5% of the total amount of each transaction or $10. Users can be charged up to $40 in case of late payment.
Cash a Check
In January 2021, Venmo introduced the ‘Cash a Check’ service for a limited number of its U.S users. It allows them to cash checks online through the Venmo platform rather than going to a check-cashing store.
Users must have Direct Deposit enabled or have a Venmo debit card to avail the service. First, the user enters the check amount in Cash a Check tab under the ‘Manage Balance’ option in the menu. Then take a picture of the check and upload it for approval.
If the request is approved, you’ll need to send another picture of the check, this time with ‘void’ written across its front. The final confirmation page will verify the total amount of money that will be credited to your account.
While submitting the check for approval, you can choose when you should get your funds. There are two choices; the standard ’10-days option’ and ‘In minutes’ option. As the name suggests, with the 10-days option, you receive funds in your Venmo account 10 days after the final approval of the check without any charge.
With, in minutes option, however, you can cash your checks within minutes. But you have to pay fees. There is a $5 minimum fee per check with a standard 1% fee on government and payroll checks and 5% on other checks.
Cryptocurrency Transaction Fees
Like cash a check, PayPal recently announced that it would allow Venmo users to trade in popular cryptocurrencies, including Bitcoin, Etherium, and Litecoin, within its platform. The minimum fee for buying or selling cryptocurrencies in Venmo is 5 cents. There is an additional charge depending on the total value of the transaction.
History Of Venmo
Venmo was created by two University of Pennsylvania graduates, Andrew Kortina and Iqram Magdon-Ismail, in 2009. The two met each other in 2001 during their freshmen year at the university.
Before Venmo, both Kortina and Iqram ventured into a bunch of different startups, including Ticketleap and Bit.ly. The idea of a mobile-based payment service first struck them while staying in New York City over one weekend. After being unable to pay one another, they felt the need for a platform to wire money among friends easily. It is how Venmo was started.
The name Venmo is a combination of two words. Its first three letters are taken from the Latin word ‘vendere,’ meaning ‘to sell’ and ‘mo’ for mobile. The initial prototype of the platform used pay-by-text-message mode to send money but later changed to an app-based method.
As a startup, Venmo secured a seed capital of $1.2 million in 2010 from RRE Ventures and Lerer Hippeau. Among the angel investors who took part in the funding round were Dustin Moskovitz (co-founder of Facebook) and Sam Lessin, who later joined Facebook.
Until 2011, the platform remained a private beta and was accessible to new customers only via invite. The closed nature of Venmo helped it to grow rapidly over three years. By March 2012, the startup was already on track to process $250 million in payments.
Later, in the same year, Venmo was acquired by Braintree, a Chicago-based payment services company, in a $26 million deal. However, Venmo became a part of the PayPal ecosystem in 2013 following PayPal’s acquisition of Braintree for $800 million.
Venmo Controversies and Privacy Concerns
In 2018, the FTC (Federal Trade Commission) charged PayPal for failing to disclose all the policies regarding fund transfer and privacy settings of Venmo to its users. According to the FTC allegation, Venmo failed to inform its users about freezing or removal of transferred funds to their Venmo balance even after receiving the initial confirmation.
In the same year, a study conducted by a privacy researcher and developer Hang Do Thi Duc revealed that a significant amount of user’s personal data on Venmo could be easily accessible by the public.
After analyzing over 200 million transactions in 2017, Hang concluded that the publically available information (through API) on Venmo is enough to get a detailed knowledge of a user’s lifestyle.
There have been increasing reports of using aggressive tactics by Venmo to recover debts from its users. It includes hiring collection agencies, as reported by the Wall Street Journal on several occasions. Recently, in February 2021, PayPal reported that CFPB or Consumer Financial Protection Bureau launched a probe against Venmo’s “unauthorized funds transfers and collections processes, and related matters.”
Venmo comes under regular scrutiny by independent security professionals and oversight agencies due to its increasing popularity. According to Venmo, the platform uses encryption to protect account information stored on secure servers. It also monitors individual account activity to prevent any unauthorized transactions.
However, various security research and fraud-related incidents on Venmo over the past few years have raised concerns over the level of security on the platform. A security audit of Venmo conducted in 2014 revealed several vulnerabilities that might get exploited.
In 2015, Slate Magazine reported unauthorized activities on Venmo accounts causing users to lose thousands of dollars. The report also mentioned that Venmo failed to notify those users of any suspicious activity that might be going on with their accounts.
Key Venmo Statistics
In 2019, Venmo had 40 million users, substantially higher than 15 million active users on Square’s Cash App. The annualized revenue of Venmo stood at $400 million in the third quarter of 2019.
According to market and consumer data firm Statista, the total payment volume (TPV) of Venmo stood at $51 billion in the first quarter of 2021. In the first quarter of 2019, this figure was about $21 billion.
An online survey (In the U.S) conducted in 2017 reported that as much as 4 percent of responders used the Venmo app for money transfers and payments multiple times a day. About 2 percent of them use it once a day and 3 percent at least once a month.
A report published by eMarketer, a New York-based market research company, estimated that about 58 percent (78 million users) of mobile P2P payment users in the U.S would be on Venmo by the end of 2021. This figure is likely to reach 62 percent (108 million users) by 2025. The report also estimated that the annual transaction amount on the platform is likely to exceed $304 billion by 2023.
Frequently Asked Questions
Is Venmo Really Free?
Yes, to an extent. Venmo doesn’t charge its users for the most basic services, such as transferring money from the Venmo balance or debit card. Venmo also doesn’t have any monthly or annual charges. It is quite possible to use Venmo for free as long as you avoid using its chargeable services.
For instance, if you choose the instant money transfer option (instead of standard bank withdraws, which are always free), you’ll be charged an extra 1 percent of the total amount. Venmo charges a 3 percent processing fee for credit card transfers.
Can you Get Scammed on Venmo?
Like any other online wallet, payment, and money transfer platform, getting scammed is a possibility in Venmo. Some of the common types of Venmo scams users should be aware of are — message phishing scams, fake sale scams, and money transfer scams.
In a phishing scam, users receive a text message urging them to log into their Venmo account through a shady URL. The wrongdoers use this method to gain user credentials to access their accounts and siphon funds without raising the alarm.
You can avoid phishing scams on Venmo by –
- Ignoring random texts, messages, and emails regarding the account.
- By using only the official app and website
Online sellers (other than selected official vendors) who accept Venmo payments are more susceptible to payment scams. Basically, a customer who earlier paid for your services/goods on Venmo can reverse the payment by filing a claim or by using a stolen card for the transaction. Eventually, the payment will be canceled, even after selling the good.
If you’re interested, here is a more thorough list of common Venmo scams and ways you can avoid them.
Do you Need a Bank Account for Venmo?
You are only required to add a U.S bank account or debit card to transfer money from your Venmo balance to the bank. It is not necessary to link a bank account for setting up Venmo for the first time.