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What's your business model?

110799

How does Venmo make money?

The payments app takes a 3% fee when users pay merchants with a credit card

Innovation series by Steven Loeb
August 16, 2017
Short URL: http://vator.tv/n/49f9

It's the rare tech company where its name becomes a verb. Googling something, or Facebooking someone, have become part of the lexicon. When you think of a search engine or a social network, these are the companies that immediately come to mind. 

The same can likely be said of peer-to-peer payment app Venmo. I've only had it on my phone for a relatively short amount of time, but, already, my girlfriend and I frequently say we'll "Venmo it" to each other when we pay for each other. What makes the app so ubiquitous is not only its ease of use (we can send money to each other in literally three clicks) but the social aspect of it, allowing you to send funny messages and emojis, while also getting a feed of who your friends are interacting with.

The company, which was initially released in 2009, has already gone through a couple of owners. It was first acquired by Braintree for $26.2 million in 2012, then becoming part of PayPal when it acquired Braintree for $800 million in 2013. Yet, it didn't make much money, at least not until recently.

Originally, Venmo did not allow merchants to accept payments, only allowing peer-to-peer payments between friends. (The company, which has been used by some to defraud people of large amounts of money, makes it clear that it is "designed for friends and people who know and trust one another.) It wasn't until January of 2016 that Venmo announced it was going to allowits platform to be used in mobile apps. Merchants would be able to include a Venmo button, which would attach a user's Venmo account to the app.

"A while back, we realized that the magic of Venmo shouldn’t be limited just to payments with your friends. What if we could make that same Venmo experience possible when our users pay for things inside their favorite mobile apps? Today, we are taking our first step toward that new reality," the company wrote. 

Venmo's initial merchant partners included Munchery and Gametime. One month later, it served $1 billion in a single month for the first time.

That ties into how the company makes its money. All of its revenue comes from credit card transactions, in which merchants are charged a 3 percent fee. Those fees are still waived on any money sent via the Venmo app or on Venmo.com using a Venmo balance, bank account, debit card or prepaid card.

"Venmo does not charge you a fee for purchasing items from participating businesses, even if those purchases are funded using a credit card. The business pays the transaction fee; not you," it explains on the FAQ section of its website.

In 2016, Venmo processed $5.6 billion of total payment volume, up 126 percent from 2015. In the most recent quarter, the company process $8 billion of TPV, up 103 percent from the same quarter in 2016. 

Going forward, there have been suggestions that Venmo might leverage its social feed to create new monetization streams. Earlier this year it was reported that PayPal had begun asking job candidates for their idea about how to best connect users and businesses, including research stating that “Venmo users are more open to purchasing at new businesses (i.e. new apps, sites, and stores) that they learn about from friends on Venmo.” 

“We’re trying to figure out ways to bring consumers to their favorite brands, apps, merchants,”  PayPal's chief operating officer Mike Vaughan told Fast Company. “Whether it’s [for] loyalty, customer interaction, or rewards, or just brand engagement.”


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