Venmo allows users to transfer money between themselves using the company’s mobile app. Venmo allows users to pay selected merchants online using the Pay With Venmo feature or by using the company’s debit cards.
Venmo earns money through its Pay With Venmo feature and Instant Transfers. There are also interchange and withdrawal fees and interest on Cash, cash fees, cash fees, cashing fees, and affiliate commissions.
Venmo was founded in 2009 and is headquartered in New York. It quickly became a success with its largely millennial user base. Braintree purchased the company for $26.2 million in 2012. It was then acquired by PayPal for $800 million a year later. Nearly 70 million people use Venmo’s app each month.
What is Venmo, and How Does it Work?
Venmo allows users to send funds between themselves via mobile peer-to-peer (P2P) app. Users can also pay at select merchants, split expenses between them (e.g., when they have dinner), or talk to one another.
To transfer funds, both parties must be registered as users. Venmo is a Facebook Messenger-like platform that allows users to chat and send emojis to each other.
The app can be linked to a user’s bank account or debit/credit card. They can transfer money to and from their Venmo accounts. Venmo is currently only available to those with a bank account, credit/debit card, or other financial institution in America.
Venmo can be integrated with businesses to allow them to take payments via the app. Merchants will need to modify their PayPal Checkout settings and add Venmo as a payment method. Grubhub, Uber, and Poshmark are examples of merchant partners.
Venmo offers a debit card, which can be linked to the app. This card allows you to buy in the “real world,” such as grocery stores or coffee shops. Users can also receive paychecks through the account and cashback from selected merchant partners.
A Brief History of Venmo
Venmo was established in 2009 by Andrew Kortina, Iqram Magdon Ismail. The initial headquarters of the company were in Philadelphia. However, Venmo moved to New York shortly after its inception.
Magdon-Ismail and Kortina met in 2001 at a freshman event at the University of Pennsylvania. Both were majors in Computer Science. However, Kortina changed her major to Creative Writing and Philosophy later.
They started their first company in their senior year. My College Post is a classifieds website aimed at college students. The pair experimented with many ideas over the years until they finally settled on adulthood.
Kortina moved from New York to become one of the first engineers at URL Shortener bit.ly, founded by networks. Magdon-Ismail worked as a software engineer for Ticketleap, Philadelphia, between then.
Magdon-Ismail paid Kortina an unexpected visit to New York in 2009. He forgot to bring his wallet with him, and Kortina had to pay the weekend’s expenses. This little incident was the spark for Venmo.
Venmo’s name combines the Latin word vendere, which means “to sell,” and “mo,” meaning mobile. Venmo was initially designed to enable users to send and get payments via SMS. Soon, funny messages were added to their inboxes.
They realized that Venmo’s social component was what attracted people. Like the one on Facebook, the social feed allowed users to see which friends were exchanging money for. Magdon-Ismael was the first angel investor in the company after his boss at Ticketleap.
The team raised their first-ever official round of venture capital funding in 2010 from RRE Ventures and betaworks (Kortina’s former employer), Lerer Ventures, and Founder Collective. Both founders were able to pursue Venmo full-time with the $1.2 million seed investment.
Venmo was in private beta until 2012 and the first two years after it went live. Access to the app was limited to invites, which allowed founders and designers to concentrate on creating the best product possible.
This strategy paid big dividends. Venmo’s product was on track to facilitate $250 million in payments exchanges in 2012 when released to the public. Venmo’s staff grew to more than 20 in that time.
Braintree announced that Braintree would acquire Venmo for $26.2 million just a few months after its public launch. Braintree was a long-standing FinTech favorite. It handled the backend payments for companies such as Uber and Airbnb. Venmo’s acquisition was the result of its strategic move to be a strong player in mobile payments.
A little more than a year later, PayPal announced that it would purchase Braintree and all its assets (including Venmo) in September 2013 for $800 Million Cash. Both Venmo and Braintree have enjoyed a strong reputation in the developer community and among consumers. PayPal allowed both companies to operate under their respective brands.
In 2014, both Magdon-Ismael and Kortina left Venmo. According to reports, the founder appeared increasingly disengaged from meetings. Venmo’s COO Mike Vaughan assumed the role of general manager.
The company’s growth was not affected by the change of leadership. They could access expertise and resources that they wouldn’t otherwise have by being part of PayPal’s ecosystem.
Venmo’s Pay with Venmofeature was launched in 2015. This feature allowed users to pay with Venmo at any merchant who is a PayPal Partner. Venmo, one of the FinTech industry’s giants, was able to access millions of merchant partners.
However, there were many controversies that the company faced over the years. Numerous complaints were filed by users alleging that others had conned them.
Venmo also banned transactions that used inappropriate terms, such as Idek. Most internet users refer to it as “I don’t even know.” It is a terrorist organization in Bangladesh.
Other people have expressed concerns about Venmo’s public access to its data. Do Thi Duc, a Berlin-based researcher, published a 2017 report showing how easy it was for the company to retrieve data through its API. She found numerous cases of people getting together, exchanging money for drugs, or being caught cheating on their partners.
Venmo, despite some hiccups, has grown to be one of the most popular peer-to-peer payments services in America, just behind Square’s Cash App and Zelle. Venmo currently processes over 10 billion dollars each month.
The app is used by close to 70 million people daily. Venmo employs over 1,000 people from four offices in the United States.
How does Venmo make money?
Venmo earns money through its Pay With Venmo feature and Instant Transfers. There are interchange and withdrawal fees and interest on Cash, cashing fees, cashing fees, and affiliate commissions.
Let’s take a closer look at each one of these income streams below.
Pay With Venmo allows users to make payments at select merchant partners with their Venmo accounts. Examples of partners are Foot Locker and Forever21, as well as Urban Outfitters, and many more.
A fee will be added to the total order amount for users who pay at these merchants. Venmo charges merchants 2.9% and $0.30 per transaction.
The fee structure follows the standard rates used by payment processors like Mastercard or VISA.
Merchants will pay the fee to increase the number of customers they can service. Venmo is sometimes the only payment option available because traditional banks are not often integrated with modern-day applications.
Venmo will also make all transactions visible on its social media feed unless the user opts out from publicly sharing this information. This gives merchants more visibility and can be used as a marketing channel to increase their visibility.
Venmo announced in 2019 that it would allow users to transfer funds instantly into their bank accounts. Normally, it takes between 1 and 3 business days to retrieve money from a Venmo bank account and transfer it to another bank.
Venmo charges a 1 percent fee for each amount transferred. The minimum fee is $0.25, and the maximum fee is $10. Within 30 minutes, the money should reach the user’s bank account.
Charges for Interchange and Withdrawal
Everybody who has an account with Venmo can now get a Mastercard-branded debit credit card. This card allows users to make purchases in the real world and pay for goods using their Venmo balance.
Connecting to the app allows users to pay for dinner with their card and then split the bill with their friends.
If enabled, transactions made with the card will be displayed in the user’s social feed. This can be used as a marketing channel similar to Pay With Venmo.
Venmo earns money by charging merchants interchange fees. These fees are usually split between Mastercard and Venmo. Customers must also pay a $2.50 ATM Domestic withdrawal fee and a $3.00 Over Counter Withdrawal fee when withdrawing cash.
Cash A Check
Venmo launched Cash A check-in in January 2021. The feature allows users to cash in their pay and government stimulus checks.
Location services must be enabled for users. They should also have a Venmo Debit Card, or Direct Deposit enabled. Users must also have a verified email address.
Venmo will then review the image and take a photo of the check. Venmo will approve the check and deposit the money into the account.
Venmo charges 1 % in exchange for the verification service. Cash must be at least $5
You can also earn cashback rewards at select merchants with your debit card. Examples of partners include Papa Johns and Target, Chevron, Dunkin’ Donuts, Target, and others.
Cashback programs transfer a portion of the total purchase price to the customer’s bank account. This encourages customers to shop with these merchants.
In this instance, Venmo is paid a commission by the partner for referring a customer. The amount Venmo pays for each purchase depends on the total transaction volume and the agreement between Venmo, the partner.
Venmo uses the Cash in its accounts just like any other bank to lend it to other institutions such as banks.
These institutions then pay them interest (also known as Net Interest Margin). According to Statista for 2019, the net interest margin of all U.S. banks was 3.35 percent.
Venmo Funding and Valuation of Revenue
Crunchbase reports that Venmo raised $1.3 million in three funding rounds. The company’s investors include Greycroft, Accel, Founder Collective, and RRE Ventures.
Braintree bought Venmo in 2012 for $26.2 million. PayPal bought Braintree for $800 million a year later. It wasn’t disclosed how much Venmo was credited with those $800.
PayPal does not disclose Venmo’s valuation today. Instead, Venmo is valued in the market capital that PayPal has amassed at $220 billion as of writing.
Dan Schulman, CEO of PayPal, stated that Venmo would generate approximately $900 million in revenue during 2021.