What Is Venmo?
Venmo is a peer-to-peer (P2P) payment app available on iPhones and Android phones that allows for the quick and easy exchange of money directly between individuals.
Founded in 2009, Venmo began as a text-message-based payment delivery system. Then, in March 2012, the company introduced a platform with an integrated social network in an effort to capitalize on the growing P2P economy. Less than six months later, Braintree, the mobile payment system utilized by Airbnb, Uber, and other ecommerce giants, acquired Venmo for $26.2 million. Less than a year after that, Venmo enjoyed a substantial boost in users when eBay acquired Braintree for $800 million and made it part of its PayPal subsidiary.
- Venmo began in 2009 as a text-message-based peer-to-peer payment platform; three years later, it launched a platform with an integrated social network.
- In 2012, it was taken over by Braintree, which was acquired by eBay one year later.
- Sending money over Venmo triggers a standard 3% fee, but the company waives the fee when the transaction is funded with a Venmo balance, a bank account, or a debit card.
- The 3% fee is not waived when users send money from a credit card.
- Venmo is accepted as a form of payment by approximately 2 million online and brick-and-mortar merchants.
How Venmo Works
After installing the app on their phones, then linking their Venmo accounts to their credit card, debit card, or checking accounts, Venmo users can instantly begin exchanging funds among one another, with Venmo functioning as a virtual fiscal intermediary.
In other words, Venmo may be seen as a middleman between the two bank accounts of the two users conducting a payment transaction. Consider the following scenario: Sally agrees to sell Mary a bracelet for $50. Mary sends Sally the funds via Venmo, which then raises the balance in Sally's Venmo account by $50, while reducing Mary's Venmo balance by that same amount.
In this way, a Venmo balance is essentially a virtual ledger that represents funds changing hands, within the Venmo platform. Until Venmo transfers the money into the recipient's bank account, it isn't technically in that user's possession.
Plenty of apps and websites offer Venmo as a payment option.
Money can be sent or requested by tapping the pay or request button in the Venmo app and then entering the other party's email address, phone number, or username. If you are the person receiving funds, you can either keep them in your balance or transfer them to your linked bank account. Naturally, money can be added to your Venmo account from your bank, too, as well as from a debit card or other payment source.
It's also possible to make payments through the app without holding the necessary funds. Should you wish to make a payment that exceeds your current Venmo balance, the money will be taken from your linked bank account. Conversely, if the transfer amount is equal to or less than your balance, then the funds stored on the platform will be used.
How Long Does It Take to Send and Receive Money?
Any money sent from one Venmo user to another should immediately appear in the recipient's account. For external bank transfers, it's a bit more complicated, with speeds varying depending on whether you are willing to pay a fee or not.
If you add funds to your Venmo balance from your bank account, it can take three to five business days for the transaction to go through. Transferring money in the opposite direction can take one to three business days.
If you're in a rush to transfer money out, there is an option to opt for an instant transfer. These transactions typically take up to 30 minutes to complete, and Venmo currently takes a 1.5% fee, capped at a maximum of $15 per transfer. PayPal has announced that Venmo will be raising those fees effective May 23, 2022, to 1.75% and $25 respectively. The pricing changes will be effective for PayPal customers on June 17, 2022.
The Social Side of Venmo
Venmo has dominated the P2P payment market by making the transfer of funds a fun and interesting exercise. Users can jazz up the exchange by using emojis to describe the traded items in question. For example, if one friend fronts his pal the cost of a glass of wine, the friend can issue a Venmo payment, with the addition of a wine glass emoji as a playful gesture.
"This takes the awkwardness out of asking your friend to pay back their portion of the bar tab, marrying the social element and the financial element," explains Venmo spokesman Josh Criscoe.
According to Venmo's website, there is ultimately no fee for sending money over the platform if the money is funded with a Venmo balance, a bank account, or a debit card. However, transactions financed with credit card payments trigger a standard 3% fee, which originates with the credit card companies and is simply passed on by Venmo to consumers.
How Venmo Makes Money
Venmo derives a significant pot of revenue from the per-transaction fees that it charges merchants. Thanks to PayPal's infrastructure, Venmo is compatible with at least 2 million merchants, providing it with two different income streams.
The first type of revenue is facilitated through a "smart payment button" that can integrate into other apps for in-app purchases. For example, in 2018, Uber added a service that allows its app users to pay for rides and Uber Eats using Venmo, without ever leaving the Uber app. Furthermore, the cost of rides and food can be divided among multiple users via the Uber app.
The second source of merchant revenue is derived from the Venmo debit card, which draws directly from a user's Venmo balance. This card operates through Mastercard and can be used at any business that accepts Mastercard. This function has helped Venmo expand beyond its exclusive P2P platform, allowing customers to transact directly with online retailers and brick-and-mortar establishments.
In both revenue-generating scenarios, Venmo charges merchants a 1.9% fee, plus 10 cents per transaction. Companies are willing to pay these rates due to the wealth of new customers brought to their doors by Venmo. Furthermore, Venmo users are more likely to elevate the profiles of participating companies over their social media accounts.
"Partnering with Venmo is like partnering with a credit card processor, but with much more upside," says consultant Richard Crone. "Retailers spend a lot of money trying to get you to like them on Facebook and follow them on Twitter. But they could get these things for free, as a byproduct of allowing Venmo payments. People can see where their friends have been and what they've been buying, which turns users into advertisements for businesses, among a highly desirable target demographic."
Is Venmo Safe?
All Internet-connected applications can be vulnerable to security breaches. Therefore, Venmo and other platforms directly linked to consumer bank accounts must be held to the highest security standards.
Venmo uses data encryption technology to protect users against unauthorized transactions while storing user information on servers in secure locations. The mobile payment service also gives users the option to log out of lost or stolen phones and set up personal identification number (PIN) codes for mobile applications.
Venmo has taken measures to protect its users from theft. However, your account still could be vulnerable if you share your password, lose your phone, or fall victim to a scam.
Unfortunately, hackers and scammers still have been able to circumvent these safeguards. After gaining access to a user's account, hackers can easily transfer the user's Venmo balance to a new bank account. And by changing the user's linked email address, hackers can reroute a user's transaction notifications, leaving them in the dark until the bank finally notifies them of balance changes long after thefts occur. Stories of Venmo users losing thousands of dollars have been reported.
Venmo Under Pressure to Clean Up Its Act
Venmo has been criticized for its security, slow customer service responses to breaches, and failure to protect users' privacy. These complaints have emphasized the app's shortcomings, but on the positive side, have also resulted in the company being forced to take measures to prevent future slip-ups and better serve its customers.
One notable settlement was reached in 2016, regarding a complaint from Texas Attorney General Ken Paxton accusing Venmo of negligent privacy, safety, and security practices. The settlement included a $175,000 payment to the state as well as reforms to these practices.
Moreover, in February 2018, Venmo reached a settlement with the Federal Trade Commission (FTC) concerning the company's failure to disclose information to consumers about privacy settings. The FTC also found the company in violation of the Gramm-Leach-Bliley Act (GLBA) Safeguards Rule, which requires financial institutions to implement measures to protect the security, confidentiality, and integrity of customer information.
As part of the settlement, Venmo is subject to biennial, third-party audits of its compliance efforts for 10 years. Violations of these terms could result in a civil penalty of up to $41,484 for each one.
How to Protect Yourself With Venmo
Users can take the following precautionary measures to combat hacking:
- Never store large amounts of money in your Venmo balance.
- Immediately transfer Venmo transactions to linked bank accounts.
- Only use Venmo to exchange funds with familiar people.
- Beware of scammers sending emails asking for your password or other personal information relating to your account. Venmo will never ask you for this information and urges users to send an email to email@example.com if confronted with suspicious activity.
- Change your setting to private to cloak transaction histories. Otherwise, other people, including strangers, will be able to view details of your transactions by clicking on your profile.
In 2021, Venmo ditched its controversial global feed, which publicly listed all transactions made by users who failed to change their default settings to private.
What Are the Risks of Using Venmo?
Like other online applications, there is a chance that your Venmo account could be hacked and your balance emptied. Ways to avoid becoming a victim of theft include making sure that you don't share your account information and password, logging out of your account when you're not using it, and refraining from storing large amounts of money on Venmo's platform.
Is Venmo Insured by the Federal Deposit Insurance Corporation (FDIC)?
Unlike most bank accounts, Venmo balances are not insured by the Federal Deposit Insurance Corporation (FDIC). This means that if Venmo goes bust or somehow loses your money, you won't automatically be reimbursed.
Is Venmo Free?
Venmo doesn't charge annual or monthly fees or make customers pay for basic services, including sending money from a linked bank account, debit card, or their Venmo balance or for withdrawing or receiving funds. The only charges that consumers could pay are if they use a credit card (which carries a 3% transaction fee), add to their balance with cash or a check, or opt for a quick bank transfer.
For merchants, the rules differ, with Venmo taking a cut of 1.9% and 10 cents from every business sale transaction.
Can You Buy Cryptocurrencies on Venmo?
Yes, you can now buy virtual currency on Venmo. However, Venmo isn't the only place where you can buy cryptocurrency, so be sure to compare its capabilities, choices, and pricing with those of other exchanges before opting to use this service.
Do I Need to Add Money to My Venmo Balance to Make Transfers?
No, it's not necessary to add funds to your balance to make a payment. Each Venmo account is linked to the user's bank account to facilitate simple transfers between the two. This basically means that if you want to send money via Venmo but don't have the necessary funds stored there, the total required amount will be taken from your bank account instead.
The Bottom Line
Over the course of its existence, Venmo has become one of the most popular peer-to-peer payment platforms, eventually branching out to merchant services and offering its own branded credit card.
While Venmo is easy to use, its users are still vulnerable to hacks and cyber theft. Use Venmo with the same caution that you would with any other online payment platform, including monitoring transactions and changing passwords regularly. When used by consumers, Venmo offers a free platform for transferring money between private parties, with options to fund transactions via credit card for a small fee. For businesses, it offers the benefit of increased visibility, along with a standard processing fee.