With Apple Pay Cash, Cash App, and Google Pay the tech industry leaders have made it easier than ever to exchange money online by integrating money transfer services with personal devices, and social media. For a time, it looked as though smartphones would become the new wallets, but then came Venmo.

Key Takeaways

  • Venmo has emerged as one of the most popular apps for electronically transferring funds, from one party to another.
  • Venmo doesn’t charge users to send or receive more money.
  • The company, which is owned by PayPal, has issued its own plastic debit card to expand compete with other upstarts like Square's Cash App.

What Is Venmo?

Venmo is the mobile application that turned personal financing into a social platform. Venmo was acquired by e-commerce company Braintree for $26.2 million in 2012, and then in 2013 PayPal purchased Braintree for $800 million. Venmo has become one of the most popular mobile applications for “person-to-person” (P2P) payments among millennials in the U.S.

With Venmo’s growing popularity among mobile users, the company announced in June 2018 that it would roll out its own debit card in partnership with MasterCard. While the debit card is almost certainly PayPal’s most recent attempt to generate revenue from Venmo, the news comes as a big win for users, who can now use their Venmo balance to make in-person purchases anywhere MasterCard is accepted in the U.S.

The move to make money transfers online, only to return to plastic a decade later, may seem surprising until you consider that Venmo’s competition has changed dramatically since launching in 2009. The contemporary Venmo competes for users with the nation’s leading banks, social media giants, and start-ups, who are in a mad scramble for the next generation of customers.

Note that in 2020, Venmo released a credit card in partnership with Synchrony.

Why Venmo Returned to Plastic

Venmo’s debit card release comes amid growing competition in the digital payment sector over the past several years. In June 2017, Apple integrated peer-to-peer payment into iMessage in the form of Apple Pay. Less than a year later in February 2018, Google responded with Google Pay, which allows for online purchases and money transfers over Gmail. Then came Zelle.

In June 2017, a consortium of U.S. banks teamed up to launch Zelle, a money transfer app that allows customers to exchange funds between bank accounts instantly. Zelle is backed by some of the nation’s largest banks, including Wells Fargo, J.P. Morgan, and Bank of America.

Zelle’s average transaction value is higher than Venmo’s. This may indicate that Zelle is used more often for transfers made to pay rent or utilities, whereas Venmo is popular for lower-value, social purchases.

It may also be that Venmo and Zelle service different customer demographics. Gen-X and baby boomers may be less inclined to use a money transfer service that pairs finances with social media and a public record of transactions. However, using a service that’s promoted by their bank might increase comfort with digital currency and high-value transfers.

PayPal, however, has launched what may prove to be its most aggressive response to the banking industry yet: a colorful, MasterCard-branded debit card. Many transactions are still carried out at the physical point of sale. By expanding into this market, PayPal can begin to bridge the gap between physical and online transactions.

“A card familiarizes [Venmo’s] brand with merchants as a payment mechanism—and merchants are going to be the biggest factor in Venmo achieving profitability," said Javelin Strategy and Research analyst Rachel Huber said. “Think marketing and loyalty tie-ins, integration fees, and promotional deals. Venmo has access to an extremely desirable consumer segment—expect them to use that to their advantage.”

Venmo Makes Splitting Bills “Less Awkward” for Millennials

Millennials in particular have reaped the rewards of digital financing and are reported to access their financial information via mobile devices eight and half more times a month than other generations. In fact, according to a study by Scratch, each of the four leading banks is among the 10 least-loved brands by millennials, with 71% reporting that they would rather visit the dentist than go to their bank.

Venmo’s reach among millennials can be credited in part to the app’s integration of social media and personal financing. When users pay rent, split their bar tab, or go out to eat, payments are logged in a public news feed, not unlike Facebook’s.

Venmo’s transparency makes asking for money a little less awkward for the nation’s poorest generation. Venmo allows users to withdraw and receive money from any bank or credit card account free of charge, but that comes at the expense of the company’s revenue.

With the release of Venmo’s debit card, which also logs purchase locations on the Venmo news feed, the draw for small businesses and online retailers may be even higher, according to a report from Morningstar analyst Jim Sinegal.

“The unique social aspects of Venmo could provide a path to advertising revenue,” Sinegal said. “Few other payment platforms make it fun for users to share their payment activity with friends.”

Venmo’s Debit Card Joins Others

PayPal and Venmo appear to have taken a play from Square (SQ)'s playbook, which launched its popular Cash Card in 2017. By June 2018, payment volume had tripled and users were spending more than $250 million monthly through Cash App, the company’s peer-to-peer money transfer service.

Acorns, the investment strategy company has also launched a debit card. The Spend card links with Acorns customers’ bank accounts, effectively allowing them to make digital direct deposits, mobile check deposits, free bank-to-bank transfers, and unlimited free or fee-reimbursed ATM withdrawals. Unlike the Venmo debit card or Cash Card, the Acorn's card is made of tungsten steel.