Well, that-and Venmo’s emojis.įor a long time, Venmo has been a money-losing proposition. The primary incentive, however, is the ease with which users can move money from Venmo to their bank accounts. In Venmo’s case, time really is money: Consumers often prefer the speed at which credit and debit cards move payments. ACH also carries only a nominal flat fee.īecause these fees are comparatively small, Venmo absorbs the costs as an incentive for more customers to join the platform. When a bank account is connected directly to a user’s Venmo account, Venmo uses ACH processing-bank-to-bank transactions-to drive the transaction. Major debit cards, on the other hand, levy a flat fee, around $0.20 per transaction. Venmo’s decision whether to charge or not to charge boils down to the fact that it costs Venmo significantly more to process payments from credit cards (and debit cards issued by smaller banks): 1 to 3 percent of the transaction value. The exception comes when people use a credit card or non-regulated debit card to pay their friends in this case Venmo charges them a 3 percent fee to make up the interchange fee, or the cut credit card networks and card-issuing banks take for each purchase.
In these cases, Venmo pays the processing, issuing, and acquiring costs to make whole the funds sent to the receiver. Venmo, on the other hand, doesn’t charge fees to users who pay using their Venmo balance, bank account, or major debit cards. Square Cash transactions between friends are free, but only work with debit cards. PayPal transactions made to or from a bank account or PayPal balance are free, but if payments funded by debit or credit cards-even to friends-carry a 2.9 percent transaction fee. The decision was no doubt driven by the competitiveness of the P2P market, and it’s paid off: The lack of fees helped give Venmo an edge over its rival, and now-parent, PayPal, and other peer-to-peer providers. So Venmo’s user fees, or lack thereof, amount to a business decision rather than a specific technical innovation.
While it might feel different to consumers, especially those thankful for the lack of fees, but they’re still relying on old standards in money movement, like credit and debit card-funded transactions and bank-to-bank transfers. In other words, while Venmo’s solution marked a huge step forward in peer-to-peer payments-as evidenced by its popularity, moving $1 billion in January 2016 alone-the company hasn’t invented new ways to move money. That’s because Venmo is largely dependent on existing payment infrastructure-and also existing fee systems. Venmo itself-like all P2P providers-has to pay transaction fees no matter what form of payment powers the peer-to-peer exchange.
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