Venmo has entered our social consciousness like never before.
A P2P mobile payment gateway, its popularity can be gauged by the way it is becoming part of the lexicon.
Pretty much the way you Google or Facebook, you have started to Venmo too.
But I am sure as more and more users discover the advantages of this free service, you wonder how does Venmo make money?
So far the transactions on it are free of cost and users do not have to pay any charge for the basic bank to bank payment.
But I am sure you are wondering how they can sustain it over an extended period?
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What Is Venmo?
Before you delve any deeper into how does Venmo make money, it is important to know what is Venmo and how it operates.
The newsfeed and the public commentary of your private transactions are what make it different.
Though part of the same company that owns PayPal, it is this social media presence that sets it apart completely.
It was founded in 2009 and started off as a payment gateway using text messages.
The idea was to capitalize on a combination of convenience and trend.
Socializing through public networking platform is gaining popularity.
Venmo combines that with latest emerging peer to peer economy circle.
By 2012, within months of its formal launch, it gained so much popularity that Braintree acquired it for over $26 million.
Braintree is the mother company that runs other successful convenience gateways like Airbnb and Uber.
Eventually the Payment major, PayPal acquired the entire organization.
Venmo has seen phenomenal growth in this short period.
Especially amongst youngsters and friends, it is being seen as a perfect platform to undertake financial dealings.
The whole idea revolves around the individual need to put up all your day to day activities on the social networking platforms.
To enjoy but at the same time take care of your responsibilities is how Venmo puts forth it’s offering.
How Does Venmo Work?
To comprehend how does Venmo make money, you have to understand how this internet application works.
The fundamentals of this app are cashing on a popular trend.
The idea is not just offer something that is convenient and easy to operate but also appeals to the latest sensibilities.
The best thing is you can operate Venmo by simply downloading the app on your smartphone.
Indeed a smartphone and an internet connection are all you need to get going.
Once you have downloaded the app, you need to connect it to a bank account.
The rest is rather simple.
You have to just type the amount and add a brief description.
Once you hit the send button on your smartphone, the recipient gets the money.
Just like in bank transactions, you can add a short description like electricity bill or restaurant.
This will help keep track of all your spending as well.
In very simple terms, this is a rather user-friendly application that has really made money transfer simple.
It is simply a matter of sending a text message.
But what is even better is that for the most part, this is a free service.
Users don’t have to pay any service charge for simple bank transfers.
They can undertake to complete the whole operation without paying a penny.
Though this makes sense for an average user, the question is how does Venmo make money?
How can this transaction be at all profitable for the company?
The Primary Revenue Streams
Well, a close study of the basic business model highlights two fundamental revenue sources for Venmo.
These are direct and straightforward channels to get money.
Needless to mention then, these involve charges for certain transactions that they undertake.
Credit card transactions are primarily how Venmo makes money.
So what exactly comprises a credit card fees in a Venmo transaction?
Well, if you use a credit card to fund your app wallet, you have to pay certain charges.
A transaction charge of 3% is levied on your transaction.
This is cardinally the transaction charge that adds much-needed fund to the Venmo kitty.
But the question is if fund transaction through the bank is free, why would you need credit cards?
Well, there are two primary reasons.
Venmo, thanks to the social networking platform it has, is mainly operated by youngsters.
This means that they are either students or fresh in their jobs.
Funds crunch is rather common in this age group.
They tend to eat out and party also a lot often.
The credit card often provides them with the opportunity to get the extra cash.
So when this happens, they would conveniently transfer money from credit card.
The transaction charge is a mere 3%.
I am sure when ready money is available almost instantly, most would bother about the charges.
Most would rationalize it as a convenience cost.
But this adds important funds to the Venmo kitty.
For many who are constantly curious about how does Venmo make money, this is one of the most important sources.
Given Venmo’s popularity and the volume of users, even at 3%, it results in a considerable sum of money.
The fact is when you keep these type of operational fees lower; you tend to attract a lot many users.
The convenience and superior service justify the money that you need to put in as operational fees.
This could only trigger more users joining the network.
Capitalizing on Merchant Fee
Another very important contributor to how does Venmo make money is merchant fee.
When your order, say a box of pizza through an affiliate firm and pay via Venmo, the concerned organization has to pay a merchant fee.
This is a nominal charge in return of Venmo providing them with crucial business.
Normally even this fee is divided into two parts, a transaction charge and an operational fee.
Most times, the average customer is not paying anything.
The merchant or the business which is benefiting from it does not mind either.
The rationale is rather simple. Venmo is facilitating their business.
Given the free transaction facility on Venmo a lot more people would be interested in buying through Venmo.
As a result, the merchant is benefitting from Venmo.
In return, they are paying a simple transaction charge.
Most astute businesses would never mind paying so.
Instead, they are constantly on the lookout for such channels of growth.
After all, the profit that they make is many times over the money they need to pay as transaction fees.
On the other hand, Venmo too can leverage on this tie-up.
By charging the merchant a 3%+ fees, they can provide the service free of cost to the customers.
This means more and more people would be interested in availing this facility.
The no transaction fees on every delivery means that they are saving the money they would have to pay as delivery charges otherwise.
Cashing in on Social Networking Trends
If you were to ask how does Venmo make money, perhaps these are the two fundamental means.
But there are many other indirect ways of earning money as well.
What’s even better is that the unique Venmo business model supports these.
For users too, it is simply an extension of their natural inclinations.
In case you are wondering how, look at the default setting on the Venmo app.
Here it displays information about what people on your timeline are paying for.
Now it is not difficult for businesses to identify the opportunity here.
They can usually get free advertisement through this type of posts.
Additionally, it often brings together a group of individuals looking for similar objects.
So this might encourage more and more businesses to opt for a presence on Venmo.
In case they are offering their services on Venmo, it goes without saying that they would have to pay for the transaction charges.
The result is Venmo gets a reasonable amount of fund flow.
Most firms would not mind paying this charge. For the same fee, they are getting more business and also a free advertisement of their product and services.
This means they can attract even a larger customer base.
All of it brings forth a symbiotic working relationship between the merchant firm and Venmo and is beneficial to both.
Why Monetizing the Venmo Platform Makes Sense
Often the question how does Venmo make money is closely linked to the signals it indicates in terms of future.
The kind of footprints that you have seen Venmo undertake in association with PayPal is only an indication of the future trends.
In fact, the parent company targets close to million retail users on Venmo in the near future.
PayPal is planning rollout a launch strategy similar to One Touch.
This is with the intent of attracting more and more merchants on the Venmo platform.
PayPal in association with Venmo is expected to bring about a way more fruitful user engagement.
In simple terms, this means more business and better revenue in a comprehensive fashion.
The PayPal stock has already seen a record 50% spike in anticipation of the type of revenue output this could bring about.
Once the integration with the One Touch platform is completed, this is expected to boost services even further.
Needless to mention, this will only enhance the profitability angle.
It will add more avenues to how does Venmo make money in a constructive fashion
Conservative estimates indicate that if the PayPal association with Venmo on the One Touch platform catches on the frenzy, the room for growth is huge.
The overall stock price movement is a big indicator of the kind of latent opportunity ingrained in this overall deal.
In fact, studies indicate that Venmo holds the largest P2P market in the world.
This includes digital and mobile offerings across a wide range of platforms. This is particularly interesting given the growth projections for the P2P network by 2021.
The Big Trends in P2P Market
In many ways, deeper analysis of how does Venmo make money highlight the trends that would dominate future dealings in a constructive manner.
Consumer trends are in fact extremely dynamic.
The most important element in this is the transparency in peer payment.
Most people pay their peers on a rather regular basis.
Increasingly you see a wide range of online and mobile offerings facilitating this need.
- Monetizing P2P payments is taking up bigger dimension now
- Companies are looking at this as an important tool to further businesses
- Higher volume growth is seen as the best facilitator of economies of scale
- Firms are looking at monetizing P2P payment gateways as a shortcut to success
Needless to mention that technology no doubt has played a very crucial part in this game plan.
User bases are increasing, networks are growing, and there is a rising number of apps to cater to this demand.
For many firms leveraging these payment gateways is not just about getting more business but also addressing the pulse of consumers.
Often these initiatives provide key inputs about possible user trends.
These then can no doubt help in bringing in a greater share of the cash kitty.
They provide a unique combination of convenience and cost-effectiveness.
Exploring the Venmo Power
Venmo’s efficiency in attracting customers and generating revenue is no longer in the realms of projection.
If you are asking how does Venmo make money, here are some broad trends that you must keep in mind.
- In just the first quarter of 2017, Venmo processed close to $7 billion payments
- On a year on year basis this first quarter performance saw a 114% growth
- Not just that, Venmo also recorded its 15th consecutive quarter of doubling the growth in their overall payment processing business
- On a quarter on quarter basis, their volume growth too has been phenomenal. Venmo has now added $900 million in terms of sheer volume growth.
This 2017 performance is a huge improvement over the 2016 growth.
As per Venmo’s accounts, they had processed payments close to $5.6 billion through the entire year.
Compared to 2015 number, this was a whopping 126% higher.
On a quarter on quarter comparison, the performance has recorded a 100% + growth across segments.
Even in terms of volume growth, there is a distinctive and perceptible rise in the numbers.
These numbers don’t just indicate Venmo’s growing popularity but the potential of the P2P payment market globally.
Though, if you see it in perspective of the overall firm’s performance, Venmo growth is barely 7% of the parent company’s total volume.
This also highlights the absolutely latent room for growth still.
It highlights that if you can carefully analyze how does Venmo make money, there could be some really interesting indicators.
It will bring to light the various channels of growth.
Not only can they add important revenue to the Venmo kitty, but it could also facilitate a comprehensive business growth in the overall sector.
So the overall profitability has huge potential to improve the quality as well as the type of service that the company offers.
The Efficiency of Venmo Business Model
Therefore, analysis of how does Venmo make money is important to understand the efficiency of the business model going forward.
The P2P market is seeing phenomenal volume growth. Remittances have crossed $1 trillion in total payments.
Just the mobile segment of this business is set to touch $17 billion mark by the end of 2019.
It is needless to mention that Venmo is going to play a very crucial role in this.
Though earlier there were some questions about the safety aspect of this P2P platform.
But as internet operations are improving, integration is smoothing out, the assumption is profitability will improve further.
The detailed probe of the so-called security breaches on Venmo has indicated that this was precisely a result of customer inexperience and ineffective integration.
But PayPal is expanding in a big way, and Venmo is its biggest associate in the journey.
The increasing popularity and use of smartphones and plethora of start-ups will continue to abet Venmo’s growth.
This more than anything will make sure that Venmo will no doubt attract more revenue and provide the better quality of service to its users.