Venmo is a mobile payment platform that started its operations in 2009. The company began its operations with the inspiration to create a transaction solution for a personal project. Its founders, Andrew Kortina and Iqram Magdom-Ismail were freshman roommates at the University of Pennsylvania. Both of them suffered some inconvenience due to the unavailability of easy-to-use payment options.
Therefore, they came up with the idea of a platform to send money through mobile phones. Initially, they intended for the process to occur through text messages. However, they later switched to the internet and developed a smartphone app. The company also raised finance through seed money in a financing round led by a venture capital firm.
Venmo rose in popularity throughout the years. Due to this popularity, it got taken over by Braintree for $26.2 million in 2012. Later in 2013, PayPal acquired Braintree for $800 million. Currently, Venmo still operates under the PayPal banner, which itself works in the same industry. However, Venmo provides an extension to the services offered by PayPal and does not compete with it.
Today, Venmo is one of the most well-known apps for transferring funds online from one party to another. Until 2015, the company did not allow consumer-to-business transactions. Venmo wasn’t as well-known during those times either. However, an aggressive marketing campaign from PayPal led to an increase in business for Venmo. Today, the platform serves more than 70 million users.
Venmo competes with various other companies in the same market. These include some big names, including Circle Pay and Square Cash. However, it is one of the most loved options among users. Recently, the company also announced regarding allowing users to buy and use cryptocurrencies. These include various currencies, such as Bitcoin, Ethereum, and Litecoin.
Overall, Venmo has been a significantly successful company. Its products and services have allowed the company to accumulate millions of users. Similarly, they are the reason why the company has survived so long in a competitive market. The primary success factor for the company has been its impeccable business model. Venmo’s business model also shows how the company makes money. Before discussing it, however, it is crucial to look at how Venmo works.
How does Venmo work?
One of Venmo’s prominent features is its ease of use. New users do not need to follow specific steps to start using the platform. Instead, they must install the Venmo app on their phone, which is available on all platforms. Once they do so, they must create an account. This process does not require any significant effort and completes in a short amount of time.
Once users create an account, it becomes their unique identifier. Any transactions that they do on this account will impact their balance. Before using the platform, however, users must link their bank account to their Venmo account. The platform also allows connecting debit cards or credit cards. Once they do so, they can start making transactions immediately and send money.
Most transactions on Venmo are free. Usually, these include transfers to and from bank accounts, debit cards and the Venmo balance. However, credit card transactions involve a charge. Users can use their bank account or payment card to transfer money into their accounts. However, they can also receive a balance from other users, which goes into the Venmo wallet.
When a user transfers cash to another, the funds get added to the Venmo account. The platform does not deposit those funds into the user’s linked accounts. Instead, users may withdraw them manually to receive them. Transfers between Venmo accounts are usually instant. However, withdrawals may require some time, depending on banking delays.
While Venmo has accumulated millions of users worldwide, they only come from the US. Therefore, Venmo only works inside the US and supports US bank accounts. The company previously focused on individual users. However, it has also introduced various features to accommodate businesses. These features also link with PayPal, which provides more businesses to Venmo.
One last element that is unique to Venmo compared to other platforms is its social feed. The platform works by facilitating digital payments with a social network of known friends. Therefore, it also provides a feed for them to share details of their transactions. However, the social feed is a byproduct of the money sending and receiving facilities.
What is Venmo’s business model?
Venmo’s business model involves the use of digital features to facilitate payments. This business model has existed ever since the company’s inception. As mentioned, the inspiration for the company also came from the personal need for a digital platform. This business model, while not unique, has some features that allow the company to attract more users.
Venmo primarily uses a C2C business model. The company only provides a platform for consumers to send and receive money online. In some cases, it may also facilitate B2C transactions. Either way, the company’s primary product will include its platform, through which it allows users to transact. Through the use of this platform, users can send and receive cash. In exchange, Venmo may charge a commission on their transactions.
Venmo has also introduced a unique element to its business model. As mentioned, the company also uses a social feed to allow users to share details of their transactions. Although not central to the platform’s services, it adds a differentiating element to its primary product. However, the company does not make money from the social feed. Although, it can result in more transactions through the platform.
Overall, Venmo’s business model involves facilitating digital payments between contacts. While the company focused on individuals, it has also expanded its operations to cover businesses. The company also has the support of its parent company, PayPal. Through this partnership, Venmo provides highly-regarded services to consumers around the US.
How does Venmo make money?
Venmo makes money from various sources. As mentioned above, the company primarily focuses on facilitating transactions, which involves sending and receiving money. Venmo does not charge for most of these services, which may raise the question of how it keeps its business running. However, the company still has a profitable business model.
Some of the primary sources through which Venmo makes money include the following.
Pay with Venmo
Pay with Venmo was a part of PayPal’s aggressive campaign to drive business toward Venmo. Through this feature, Venmo charges a 3% merchant fee and 0.30 transactions for every transaction processed. This feature allows users to make purchases at Venmo’s merchant partners through their Venmo account. The rates that the company charges are similar to what some payment card providers deduct.
Instant transfers
Traditionally, Venmo users transferred their funds to their bank accounts which required one working day to complete. However, the instant transfer feature allows users to get those fund transfers immediately. However, the company charges a 1.5% fee for the amount transferred. Venmo also caps this fee at $15 while deducting a minimum of $0.25 for each transaction.
Transaction fees
Venmo’s primary transaction fees include interchange and withdrawal fees. For these services, the company charges its users, which add to its revenue streams. Venmo charges its merchant partners an interchange fee. Similarly, it deducts a withdrawal fee for payments through ATMs. Usually, these fees include a fixed amount between $2.50 and $3.00.
Interest on cash
Venmo handles the money stored in a user’s accounts. This money presents an opportunity for the platform in the form of excess reserves. Consequently, the company uses these funds to provide loans to institutions. In exchange, it receives interest on those loans. These transactions do not affect the user or their balances. However, the company gets to benefit from them through interest income.
Others
Venmo also generates income from other sources. For example, the company has the cash a check feature for which it charges a 1% transaction fee. Similarly, it offers a cashback program. Through this program, Venmo earns money from its merchant partners. Lastly, the company also provides cryptocurrency services, for which it charges users transaction fees.
Conclusion
Venmo is a mobile payment platform that offers digital payments and receipts. The company started its operations in 2009 and currently operates under PayPal. Similarly, it is one of the most prominent names in the online payments industry in the US. One of the critical success factors for the company has been its business model. A description of Venmo’s business model and how it makes money is given above.
