How Does Venmo Make Money?

12 min read

How does Venmo make money? Venmo is a digital wallet that allows users to send and receive money amongst each other through the use of the company’s mobile application.

Users can also pay at specified businesses using Venmo, either online (using the Pay With Venmo function) or by using the company’s debit card, which is linked to their Venmo account.

Venmo generates revenue through the Pay With Venmo feature, Instant Transfers, interchange and withdrawal fees, spreads and fees on cryptocurrency transactions, fees on check cashing, and affiliate commissions from a cashback program offered to debit cardholders. Venmo is headquartered in San Francisco, California.

Venmo, which was founded in 2009 and is located in New York, quickly gained popularity among its largely youthful user base.

When the company was acquired by Braintree in 2012 for $26.2 million, it was a precursor to PayPal’s acquisition of the company the following year for $800 million. Venmo’s app is now used by nearly 70 million people every month, according to the company.

Venmo’s Brief Historical Background:

Andrew Kortina and Iqram Magdon-Ismail co-founded Venmo. Founded in Philadelphia, the corporation quickly shifted to New York.

Kortina and Magdon-Ismail met in 2001 during a freshman event at Penn. Then Kortina changed his major to Creative Writing and Philosophy.

In their senior year, they founded their first firm. My College Post was a classifieds website for college students. They kept experimenting with different concepts until adulthood caught up with them.

Kortina relocated to New York and joined URL shortener bit.ly as an engineer (which was founded by betaworks). Meanwhile, Magdon-Ismail worked for Ticketleap in Philadelphia.

Magdon-Ismail met Kortina in New York in 2009. He forgot his wallet, so Kortina had to pay for the weekend. Fortunately, this incident spawned Venmo.

Venmo is a mix of the Latin words vendere (to sell) and mo (mobile). Initially, Venmo was created to allow users to pay by SMS. Soon later, their inboxes were flooded with amusing payments.

Venmo’s social feature drew users in, the duo recognized. They included a social feed (like Facebook’s) so users could see why their friends were trading money. Magdon-former Ismael’s Ticketleap boss invested as an angel.

RRE Ventures, betaworks (Kortina’s former employer), Lerer Ventures, Founder Collective, and others invested in the team in 2010. The $1.2 million startup funding allowed both founders to focus on Venmo.

Venmo was in private testing until 2012, and then for two years. The software was only available by invitation, allowing the founders to focus on creating the finest product.

That strategy paid quite handsomely. When Venmo launched in March 2012, it was on track to enable $250 million in payments that year. Venmo’s workforce has grown to nearly 20 people.

A few months later, Braintree said it would buy Venmo for $26.2 million. Braintree, a former FinTech darling, handled payments for Uber and Airbnb. Its acquisition of Venmo was part of a larger strategy to dominate the mobile payments market.

In September 2013, PayPal said it will buy Braintree (and all its assets, including Venmo) for $800 million. Both Braintree and Venmo have a solid reputation among developers and consumers. PayPal then let both enterprises operate under their own brands.

A year later, both Kortina and Magdon-Ismael left. He seemed inattentive in meetings, reports said. Former COO Mike Vaughan took over as GM.

The company’s growth was not hampered by the leadership transition. Ensuring they have access to expertise and resources was another benefit of being part of the PayPal ecosystem.

A good example is Venmo’s 2015 launch of Pay with Venmo, allowing customers to pay using Venmo at any PayPal partner merchant. Venmo gained access to millions of new merchant partners thanks to this move from a FinTech industry heavyweight.

Nonetheless, the corporation has had its share of controversy. Untold numbers of users reported being conned.

Aside from unsuitable phrases like Idek, which most internet users refer to as “I don’t even know”, Venmo has also blacklisted some transactions. A prominent terrorist organization in Bangladesh, unfortunately.

Others have expressed concern about Venmo’s data availability. To demonstrate how easy it is to access data from the company’s API, Do Thi Duc, a Berlin-based researcher, reported in 2017. Many people broke up, exchanged money for drugs, or were caught cheating on their partner, she discovered.

Regarding privacy disclosures, in February 2018, Venmo and PayPal both had to pay with the Federal Trade Commission (FTC). In March 2021, US Vice President Joe Biden’s Venmo account was made public, exposing its privacy issues even further.

To avoid being found in any stream, Venmo redesigned its app and privacy settings.

After Zelle and Square’s Cash App, Venmo has evolved to be one of the most popular peer-to-peer payment services in the US. It now handles over $10 billion in transactions per month.

The app is regularly used by close to 70 million users. Venmo today employs over 1,000 individuals across four offices in the US.

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Venmo: What Is It and How Does It Work?

Venmo is a mobile peer-to-peer (P2P) application that enables its users to transfer payments between one another between their mobile devices. Furthermore, the app allows users to pay at specific shops, share prices between them (for example, when dining out), or simply communicate with one another.

In order to transfer funds, both parties must be registered as users on the site before the transfer may take place. Venmo has a similar vibe to Facebook Messenger in that it allows users to interact with one another and send emojis to one another.

The app is linked to a user’s bank account or debit/credit card account for authentication purposes. This enables them to move money between their Venmo accounts and vice versa.

For the time being, Venmo can only be set up if the user has a bank account or credit/debit card from a financial institution in the United States.

As a result, companies can also integrate with Venmo in order to take payments through the application. Venmo is a payment option that merchants may add to their existing PayPal Checkout settings by simply adding it as an additional payment method. Grubhub, Uber, Poshmark, and lululemon are just a few examples of merchant partners.

Finally, Venmo offers a debit card that may be linked to the app in order to accept payments. In the “real world,” customers can make purchases at places such as coffee shops or grocery stores with the card.

In addition, users can get paychecks through the connected account and earn cash back at a variety of merchant partners by using the account.

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How does Venmo make money?

Venmo generates revenue through the Pay With Venmo feature, Instant Transfers, interchange and withdrawal fees, spreads and fees on cryptocurrency transactions, fees on check cashing, and affiliate commissions from a cashback program offered to debit cardholders. 

Let’s take a closer look at each of these sources of income in greater depth below:

1. Instant Transfers:

Having to transfer money from an e-wallet and then waiting several days for that money to appear in your bank account is getting old. Venmo, on the other hand, allows you to say goodbye to such days because it allows you to make quick transfers.

This was disclosed back in January of this year. Transferring money to your bank account would take 1-3 days before that, depending on the circumstances.

When you transfer money, you will additionally be charged a 1 percent fee based on the amount of money you transfer. There is a minimum fee of $0.25 and a maximum fee of $10 for each transaction.

A maximum of 30 minutes is required for the transfer. Because so many people require money as quickly as possible, users are compelled to use this form of fast transfer, which results in Venmo receiving a portion of the transaction.

2. Interchange & Withdrawal Fees:

Since 2018, Venmo has provided its own Mastercard-branded debit card to everyone who has signed up for an account with the company. The card enables users to make transactions in the ‘real world’ while utilizing their Venmo balance to pay for the products they purchase.

Users can, for example, pay for a supper with their card while connected to the app and then choose whether or not to divide the price with their pals.

Furthermore, if the feature is enabled, the card’s transactions will appear in the user’s social media stream as well. This is similar to Pay With Venmo in that it may be used as a marketing avenue for businesses as well.

Venmo makes money from the card by charging merchants interchange fees, which is how the company makes money. Venmo and Mastercard will almost certainly divide the fees associated with this transaction.

Customers must also pay a $2.50 ATM Domestic Withdrawal Fee and a $3.00 Over-the-Counter Withdrawal Fee when withdrawing cash from the bank.

3. Pay with Venmo:

Paying using Venmo is a feature that is available to anyone who has the app installed. Users can make purchases from particular merchants as a result of this feature.

In other words, if you want to make a purchase from one of the shops that have partnered with Venmo, such as Urban Outfitters or Foot Locker, you can choose to pay using Venmo instead of cash.

This is especially useful if the user does not wish to utilize his or her credit card details to make payments on the websites. Then, because the customer chooses to pay with Venmo, a small fee is added to the total order. In addition to $0.30 for every transaction, merchants are charged 2.9 percent of the total amount of sales.

Naturally, businesses will not be hesitant to pay the tax because it is in their best interests to do so. By paying the charge and accepting Venmo payment, they will be able to attract more customers, which will be beneficial to them in the long run.

Furthermore, there are numerous modern apps that do not interface with traditional financial institutions. This implies that you may not be able to use your bank account on some websites.

Venmo becomes a fantastic choice in this situation. With this in mind, it makes obvious that Venmo would be allowed to take a part in the transaction.

4. Cryptocurrency Fees:

It was announced in June 2021 that Venmo would offer the ability to buy and sell cryptocurrency over its platform.

Customers in the United States can currently transact in four different cryptocurrencies, including Bitcoin, Bitcoin Cash, Ethereum, and Litecoin, at this time.

When it comes to cryptocurrency, Venmo makes money through charging a so-called spread, as well as by charging transaction fees.

The spread is the difference between the market price that Venmo obtains from its trading partner (Paxos) and the exchange rate that is displayed to the user between US dollars and the crypto asset that is being displayed.

It is depending on market variables such as the strength of the US Dollar that the spread is determined. On top of that, Venmo charges a transaction fee for each purchase or sale that is made.

Venmo’s fees are in line with those charged by other big cryptocurrency exchanges such as Binance and FTX and are not prohibitively expensive.

5. Cash A Check:

It was only in January 2021 that Cash a Check became available, making it a new type of service.

It is because of this service that customers will be able to cash in their paychecks as well as stimulus cheques that the government is providing. The possibility of this happening is conditional on a few factors.

The email address must be validated, and the Venmo Debit Card or Direct Deposit feature must be enabled in order to use the service. You must photograph the check in order to deposit the funds into your account.

Venmo will evaluate it first, and then it will be posted. As long as everything goes smoothly and your application is approved, the money will be put into your account immediately.

Venmo will charge a one-percent fee for this service. It’s also important to remember that you need cash in at least $5 to be considered successful.

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6. Cashback Program:

 The debit card offers the opportunity to earn various cashback incentives at a variety of merchant locations. Chevron, Papa John’s, Target, Dunkin’ Donuts, and a slew of other companies are examples of strategic partners.

Cashback programs refund a percentage of the total purchase price back to the customer’s account after the transaction has been completed. Customers are so encouraged to shop at these merchants as a result of this.

The partner then pays a commission to the advertiser, in this case, Venmo, in exchange for referring that particular consumer.

The amount of money Venmo makes on each purchase is determined by the overall volume of transactions as well as the terms of the agreement between Venmo and the partner.

7. Cash Interest:

Finally, Venmo can make money through the use of cash interest, which is another technique of earning money. In order to lend money to other institutions, Venmo is allowed to use the funds in the accounts. This could be a financial institution such as a bank.

Following that, they receive interest payments from the bank. As reported by Statista, the net interest margin for every bank in the United States reached as high as 3.35 percent in 2019.

Conclusion on how does Venmo make money?

When it comes to mobile payments, Venmo is a fantastic software that is growing in popularity as more people learn about its advantages. Despite the fact that the platform allows users to send and receive money, it does not prevent them from taking a cut of the transaction.

Among the methods Venmo employs to collect fees from their users include withdrawals, quick transfers, and Venmo payments. By charging fees to its users, Venmo is able to generate revenue for itself.

In order to avoid being caught off guard by costs when using Venmo, it is necessary to be informed of them before using the service.

With this article, I hope your question on ‘How does Venmo make money? has been answered and explained well for your understanding.

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