Venmo, boasting an impressive user base of over 83 million in the US, has established itself as one of the most popular digital wallets in the market.
This user-friendly platform enables seamless money transfers, payments for services from merchant partners, and even simplifies splitting restaurant bills.
Unsurprisingly, Venmo has become the preferred mobile payment network for Gen Zers and Millennials alike.
What sets Venmo apart from other payment services is its unique chat feature that allows members to interact while also being fee-free for transfers within its network.
But the question arises, how does Venmo generate revenue?
This article will delve into Venmo’s business model and shed light on other revolutionary aspects that have contributed to its success as a leading financial service provider.
Venmo business model
Venmo, a peer-to-peer mobile payment network, aims to simplify money transfers between individuals.
Its business model revolves around attracting a large customer base and offering chargeable services.
To keep users engaged, Venmo has designed its platform with a familiar interface resembling Facebook Messenger.
This approach makes Venmo feel more like a communication tool than just a transactional platform, appealing to younger users who value its social aspect.
Furthermore, Venmo enables users to connect their debit cards to the app, allowing it to be used like a regular card.
Users can also receive paychecks through connected accounts and earn cashback from retailers within the Venmo network.
Below is a comprehensive list detailing the various aspects of Venmo’s revenue model.
How does Venmo make money without fees?
Venmo utilizes a variety of methods to generate revenue and achieve significant profits through its app and services. These are the primary avenues through which Venmo generates income:
- Pay with Venmo
- Interchange and withdrawal fees
- Instant transfers
- Check cashing
- Interest
- Cashback partners
1. Pay with Venmo
The Pay with Venmo feature empowers users to conveniently utilize their Venmo account or debit card to make online purchases, in-app transactions, and payments at select retail outlets.
As Venmo’s flagship revenue stream, Pay with Venmo offers a viable solution for users who may be hesitant to link their bank account with new apps or those that lack integration with banking institutions.
With Pay with Venmo, users can securely link their Venmo account with other apps or websites without the hassle of entering their banking information repeatedly.
This is particularly beneficial for mobile apps related to sports wagering, which have seen significant growth in recent years.
Users can effortlessly fund their sportsbook accounts and cash out to Venmo, eliminating the need to input banking details on multiple apps.
Similar to Visa or Mastercard, Venmo charges merchants and service providers a fee for transactions made using Pay with Venmo.
This fee amounts to 0.30 cents per transaction, along with 2.9 percent of the total purchase value.
Despite these charges, businesses are willing to adopt Pay with Venmo due to the increased sales opportunities and customer attraction it offers.
2. Interchange and withdrawal fees
In 2018, Venmo rolled out its own debit card, which allows all its users to request a Venmo-branded card for their day-to-day transactions.
When paired with the Venmo app, this debit card comes in handy for splitting bills with friends on a night out, making it a user-friendly and popular option.
The Venmo debit card is powered by Mastercard, and when users make purchases with it, Venmo collects interchange fees, which are then shared with Mastercard.
In addition to interchange fees, Venmo also charges a withdrawal fee for cash withdrawals made using the debit card at ATMs or financial counters.
The withdrawal fee for ATM withdrawals is $2.50, while over-the-counter withdrawal transactions incur a fee of $3.00.
Although interchange and withdrawal fees do not generate as much revenue for Venmo as Pay with Venmo, they still contribute to the company’s profitability by adding to the income from its debit card offering.
3. Instant transfers
Venmo offers users the option to transfer money from their Venmo account to their bank account.
However, this process typically takes a few days for the funds to become available.
In 2019, Venmo introduced a new feature to address this inconvenience for users who didn’t want to wait for their money to arrive in their bank account – instant transfers.
With instant transfers, users can now receive their funds in as little as 30 minutes.
While this feature offers convenience to Venmo users, it also presents an opportunity for Venmo to generate revenue.
Unlike regular transfers, instant transfers are not free on the Venmo app.
Venmo charges a fee of 1 percent of the total transaction amount for instant transfers, with a minimum charge of 25 cents and a maximum charge of $10.
This means that users who choose to transfer their money instantly to their bank account will have to pay a convenience fee.
While this fee may seem like an additional cost, it helps Venmo generate revenue and maintain its ability to provide free peer-to-peer payment services to its users.
So, if you are in a hurry to access your Venmo funds in your bank account, be aware of the instant transfer fee associated with this convenient feature.
4. Check cashing
In 2021, amidst the COVID-19 pandemic, as many individuals received stimulus checks from the government, Venmo rolled out a new feature – a cash-checking service.
To avail this service on the Venmo app, users are required to have a Venmo debit card or enable direct deposit.
Venmo has simplified the process of cashing a check.
Users simply need to capture images of the front and back of the check using the app, and the amount will be deposited into their Venmo account.
Venmo monetizes this service by imposing a 1 percent fee.
In order to utilize the check cashing feature on Venmo, the check must be of a minimum value of $5 or more.
This convenient offering showcases Venmo’s expanding repertoire of services, which are traditionally associated with traditional banking institutions.
5. Interest
Similar to other financial institutions, Venmo leverages the funds in its accounts to provide loans to various entities such as banks, investors, and more.
Through this practice, Venmo generates interest income from the money it lends to these organizations.
While interest earnings are a common revenue stream for financial institutions, rest assured that your Venmo balance is protected by FDIC insurance, mitigating any concerns about potential losses stemming from Venmo’s lending activities.
6. Cashback Partners
A major advantage of utilizing a Venmo debit card is the opportunity to accrue cashback rewards when making purchases at specific vendors.
Venmo earns a commission from the sales generated through this cashback program.
Merchants that join the Venmo cashback program are likely to see an increase in customer engagement, as more individuals are drawn to the potential savings.
Consequently, partner merchants compensate Venmo with a fee in order to be included in this program.
Conclusion
Venmo is widely used by people without incurring any charges.
However, our research has revealed that Venmo has multiple avenues for generating revenue.
This makes it a prime example for businesses interested in developing their own FinTech app.
By offering a free service to users while also generating revenue, Venmo demonstrates how to attract and retain users while monetizing the platform.
If you aspire to create a cutting-edge financial app, it’s crucial to have a reliable and capable partner by your side.
Reach out to an experienced app development partner to explore your ideas further and gain insights into the essential components for building a successful FinTech app.