A hybrid social media cum mobile payment service, Venmo allows its account holders to transfer funds to others through its mobile phone app. Introduced as a payment app targeting the millennial customer base, Venmo has emerged as one of the most popular payment apps in the peer-to-peer space. Venmo becomes even more attractive to its users because of its ‘social media platform’ like features. Apart from money transfers, users also get to know how and where their acquaintances are spending money. The company was acquired by Braintree after just 3 years into its operation for $26 million and a year later, Braintree was acquired by PayPal for $800 million.
How does Venmo Work?
The major deal involves signing up on Venmo in order to be able to send or receive money. Venmo users can then exchange funds with each other by linking a credit card, debit card, or linking their bank account to their Venmo account. The funds that are being exchanged on Venmo can either be stored in the on-platform Venmo balance or cashed out to a bank account for processing. The application programming interface on Venmo allows business owners or merchants to connect their websites and businesses directly to their payment services.
To get a deeper insight into its working, consider Venmo as a middleman between users and their bank accounts. Money can be sent back and forth between you and your friend without any extra money charged by your bank if your bank account is connected directly with the Venmo. And, 3% of the total amount is charged if a credit card is chosen as a medium of transaction.
The major catch here is that there is a limit on the maximum transaction amount. The unverified users can send or receive a maximum of $ 299 per week while the verified users are allowed a transaction of $ 2999 per week. Recipients can be found based on their usernames, contact names or email IDs on Venmo. A user’s Venmo balance is actually a ledger that represents funds and transactions without executing them outside the platform. Venom was an open for all app prior to this acquisition which increased the risks of money laundering and fraud associated with its business model. But after its takeover from Braintree, it became compulsory for its users to verify themselves before making transactions which ultimately resulted in enhancing its authenticity.
How does Venmo make Money?
Venmo platform doesn’t show ads, nor does it seem to follow any other traditional method for making money. Then how does this PayPal cash cow maintain a near 100% growth every quarter? Let’s find out.
As of now, the major source of revenue for Venmo is the transactions done on it via credit cards. The primary customer segment of Venmo, the millennials, rely heavily on their credit cards and don’t hesitate in paying a minor 3% transaction fee to Venmo. This little transaction fee of 3% on credit card transactions adds a hefty sum to Venmo’s earnings.
After becoming a part of PayPal, Venmo’s revenue model got a major powerup as it now got access to those 2 million merchants who used to accept payments via PayPal. Venmo started generating larger revenue after its acquisition by PayPal as a number of merchants were partnered with PayPal and a standard model was introduced by PayPal for these merchants. So, whenever a business transaction is done via Venmo, the concerned organization pays a merchant fee to it. This nominal charge of 2.9% plus some fixed charge is happily paid by the merchants as Venmo provides them with beneficial business opportunities.
The social feed of Venmo has also played a major role in making it more valuable. The transactions made are shown on the Venmo feed of users’ friends and there is also an add-on-bonus for the merchants along with the transactions. Their business is facilitated heavily due to this free advertising and Venmo is rewarded in return. This idea has played a very important role in bringing fruitful results for Venmo, thereby leading to a sharp rise in their total payment volume.