The popularity of e-commerce led to the emergence of digital wallets. One of the most popular mobile payment service providers is Venmo. How does Venmo make money?
Venmo makes money through fees on cashing checks, interest on cash, interchange, and withdrawal fees. It also makes money through Instant Transfers and its “Pay With Venmo” feature. Aside from that, it also receives affiliate commissions from the cashback programs offered to debit cardholders.
Read on to learn more about Venmo, how it makes money, and more.
How Does Venmo Make Money?
Venmo is a mobile payment service provider. It is a digital wallet that allows users to transfer money using the Venmo mobile app. Users can also be used as a payment method at selected merchants. Payment can either be online or via Venmo’s debit card.
Venmo is headquartered in New York and was founded in 2009. When it started, most of its clients were millennials. In 2012, Braintree acquired the company for over $26 million. Later on, PayPal acquired it for $800 million. As of May 2021, roughly 70 million people use the app every month.
Venmo makes money in different ways. It can be through fees on cashing checks, interest on cash, interchange, and withdrawal fees. They also make money through Instant Transfers and its Pay With Venmo feature. Aside from that, they also get affiliate commissions from cashback programs offered to debit cardholders.
So, how does Venmo make money?
Venmo makes money from various income streams. These include the following:
- Pay with Venmo Feature
- Instant Transfers
- Interchange & Withdrawal Fees
- Cash a Check Feature
- Cashback Program
- Cash Interest
1. Pay with Venmo Feature
Venmo users can buy at selected merchant partners using the Pay with Venmo feature. Among its merchant partners are Urban Outfitters, Forever 21, and Foot Locker.
Every time users pay at any of the merchant partners; a fee is applied for every transaction. Venmo charges each merchant partner 2.9% and an additional $0.30 per transaction. This fee structure is patterned after the standard rates applied by other payment processors, including Mastercard and VISA.
The fees may seem like an additional expense for merchant partners. But it does successfully attract customers and expand its client base. In most cases, traditional banks are not integrated with modern-day apps. This makes Venmo the only available payment option for consumers.
When users buy items from merchant partners, the transaction is posted on Venmo’s social feed. This becomes a valuable marketing channel that helps merchant partners increase their exposure.
2. Instant Transfers
It was in 2019 when Venmo announced its Instant Transfer feature. This allows users to transfer funds from their Venmo accounts into their bank accounts.
With the basic feature, transferring funds will take 1 to 3 banking days. But if you want a real-time transaction, this is still possible, but it will involve a 1 percent fee. Generally, the fee ranges between $0.25 and $10.
3. Interchange & Withdrawal Fees
Venmo has been offering a debit card which is a tie-up with Mastercard since 2018. As long as you have a Venmo account, you are entitled to get a debit card. You can use it to buy products or services offered by selected merchants.
The transactions using this debit card also show up in Venmo’s social feed. This makes it an effective marketing channel for merchants.
Interchange fees are charged to the users of the Venmo debit card. This type of fee is split between Mastercard and Venmo.
In terms of retrieving cash, Venmo debit card users must pay an ATM Domestic Withdrawal Fee of $2.50. As for the Over-the-Counter Withdrawal Fee, it amounts to $3.00.
4. Cash a Check Feature
The Cash a Check feature is a service launched by Venmo in January 2021. This time, Venmo users can conveniently cash in paychecks. They can also cash in government stimulus checks.
To use this feature, users have to turn on the app’s location services. They must own a Venmo debit card, or they must enable the app’s Direct Deposit feature. Also, they must have a verified email address.
All the users have to do is take a photo of the check and send it to Venmo using the app. Venmo will then review this. Once approved, the money will automatically be deposited into the user’s account.
Venmo charges a processing fee of 1% for this service. There is also a minimum amount of $5 that must be cashed in.
5. Cashback Program
If you have a Venmo debit card, you can earn cashback rewards too from selected merchants. Among these merchants are:
- Dunkin’ Donuts,
- Papa Johns, and
With the cashback programs, a percentage of the total amount bought goes back to the customer’s account. This encourages customers to shop often at these merchants.
The merchant partners then provide Venmo a commission for customer referrals. The percentage or amount of commission depends on the total transaction volume. Also, it depends on the agreement between the merchant and Venmo.
6. Cash Interest
Similar to other financial institutions, Venmo manages its funds by investing in other businesses. They lend out funds to other institutions and earn from the interest they charge. Their interest rate is patterned after the standard rate applied by all banks in the United States.
The first official round of venture capital funding raised by Venmo was in 2010. Their investors include Founder Collective, Lerer Ventures, Betaworks, and RRE Ventures, among many others. Venmo gathered a seed investment of $1.2 million, enabling the founders to work on this digital wallet project full-time.
The company remained in private beta for its first two years of operation. The users were limited and could only participate by invite. This enabled Magdon-Ismail and Kortina to focus on developing the best features for the app.
Magdon-Ismail and Kortina finally launched the Venmo app to the public in March 2012. By the end of the year, they were already facilitating roughly $250 million in payment exchanges. They then had to grow their team to more than 20 people.
Only a few months after the public launch, Braintree already announced its decision to acquire Venmo. Such an acquisition formed part of a strategic initiative to strengthen Venmo’s presence in the world of mobile payments.
The success led to the decision of PayPal to acquire Braintree in September 2013. Braintree and Venmo have both earned a positive reputation from the developer and consumer communities during that time. PayPal then decided to allow both businesses to operate under their own brand names.
Again, how does Venmo make money? Venmo makes money through fees on cashing checks, interest on cash, interchange, and withdrawal fees. It also makes money through its “Pay With Venmo” feature, Instant Transfers, and affiliate commissions from the cashback programs offered to debit cardholders.
Venmo Valuation and Revenue
Based on a report by Crunchbase, Venmo raised more than $1 million after three rounds of funding. Venmo investors include RRE Ventures, Founder Collective, and Accel, among many others.
Braintree acquired Venmo in 2012 for more than $26 million. Then, PayPal, later on, acquired it from Braintree for $800 million.
PayPal opts not to disclose the valuation assigned to Venmo. Instead, the valuation of Venmo is already priced in the market capitalization amassed by PayPal. As of May 2021, Venmo’s valuation amounts to more than $200 million.
According to PayPal CEO Dan Schulman, they expect Venmo to generate roughly $900 million in revenue by the end of 2021.
What Is Venmo?
This company is a mobile peer-to-peer (P2P) app that enables users to transfer funds. Aside from that, it allows users to pay at selected merchants.
A group of friends dining at a restaurant can also split the cost using the Venmo app. But users don’t need to transfer funds or pay online merchants all the time. So, when they are not transacting, they can use the app to talk to each other.
Venmo has a feature that is similar to Facebook Messenger. This feature allows users to chat with each other. They can even send emojis too.
If you want to transfer funds, you have to make sure that the other party is also a registered Venmo user. Otherwise, the transaction will not be successful in that you can only chat with registered Venmo users.
To use the Venmo app, it has to be linked to your bank account, your debit card, or your credit card. But for now, only financial institutions located in the United States are recognized by the app.
If you have a business, you can use the Venmo app to accept payments from clients. All you have to do is to adjust your existing PayPal Checkout configuration. Then, add Venmo as a payment method. Among Venmo’s merchant partners are lululemon, Poshmark, and Uber.
Venmo also offers a debit card to its users. This debit card is connected to the app. So, in case you’re dining out or grocery shopping, you can use your Venmo card instead of the mobile app.
It’s also possible to receive paychecks through associated accounts. Users can earn cashback too at selected merchant partners.
A Brief History of Venmo
University of Pennsylvania roommates Iqram Magdon-Ismail and Andrew Kortina founded Venmo in 2009. They were assisting a friend in putting up a yogurt shop. It was during this time when they initially thought of creating a transaction solution.
They were toying with the idea of being able to buy items through text messages. Until one time, Magdon-Ismail forgot to bring his wallet when he traveled to visit Kortina. While Kortina could conveniently lend him money, settling the debt was such an inconvenience due to distance.
This led them to find a way to be able to send money through mobile phones. Their initial prototype allowed them to send money through text messages. Then, they eventually found a way to transition from text messages to a smartphone app.
The business name “Venmo” is a combination of two words. It was derived from the Latin word “vendere,” which means “to sell.” Whereas “mo” was derived from the word “mobile.”
Its first angel investor was Magdon-Ismail’s former boss at Ticketleap.
Magdon-Ismail and Kortina initially designed Venmo so that users could send and receive payments through SMS. But aside from payments, they soon found inboxes also being filled with funny messages.
This made them realize how the social aspect of the app successfully attracted people to Venmo. So, they eventually added a Social Feed feature similar to that of Facebook. It also allowed users to indicate the purpose for exchanging money.
Magdon-Ismail and Kortina decided to leave Venmo in 2014. Venmo COO Mike Vaughan took over the role as Venmo’s general manager.
Despite the change in leadership, this did not impact the growth of the company. The acquisition done by PayPal was indeed a strategic move. Venmo was able to gain access to the expertise and resources they otherwise would not have had tapped.
One of the positive impacts of PayPal on Venmo was when the latter launched its Pay with Venmo feature. Venmo users become capable of paying any merchant that has a tie-up with PayPal. This has allowed Venmo to access millions of merchant partners.
Conclusion – How Does Venmo Make Their Money?
Venmo makes money in various ways. It can be through fees on cashing checks, interest on cash, interchange, and withdrawal fees. They also make money through Instant Transfers and its Pay With Venmo feature. Aside from that, they also get affiliate commissions from cashback programs offered to debit cardholders.
Indeed, Venmo brings convenience to its users with its smartphone app. But even without your smartphone, you can still buy products, get services, or dine using your Venmo debit card. You can even participate in cashback programs too. Not only that, but you can also convert your checks into cash.
These conveniences, however, have corresponding fees. As Venmo users, we should realize that Venmo earns through these fees. These fees allow Venmo to continue its services. The same fees enable Venmo to continue developing ways to make their services even better.