Venmo is one of the biggest and most popular peer-to-peer payment apps that is used for online transactions. Unlike other money transfer services, Venmo isn’t a bank, it’s a social app that connects directly to your bank account. With this app, you can securely send and receive money between your friends and family members.
You might wonder how Venmo makes money. In this article, we examine how Venmo was founded, how it makes money through its platform, and its current valuation.
What is Venmo?
Venmo, owned by PayPal is a smartphone app used to make payments from one user to another user through linked bank accounts.
Venmo is a cross-platform mobile app that allows users to transfer money between one another instantly. Users have an account balance that’s used to both send and receive payments. To add or deposit funds, users can connect their bank accounts, debit cards, and credit cards. The free app doesn’t charge a fee to transfer money between bank accounts or debit cards, but for credit card transactions, they charge 3%.
Venmo is a social media-driven app. But unlike other apps, Venmo posts transactions to social media. This can be turned off, though. Users are able to find and add friends from email or Venmo usernames or phone numbers. It’s so easy to split rent and concert tickets with friends now with the help of an app. You can then share your transactions and messages for each of these activities on the app’s news feed.
|Launch Date:||August 2009 (March 2012 public launch)|
|Headquarters:||New York City, US|
|People:||Dan Schulman (PayPal CEO), Mark Britto (CPO)|
What does Venmo do?
Venmo, founded by two college roommates in 2009. They released an app that allowed users to pay for things using text messages. In 2012, they began to release their app for iPhone and Android devices, finally making it possible for everyone to use Venmo.
One of the keys to the success of Venmo was its ability to transfer cash from one device to another. Then, you could link the app to a checking account and transfer funds that way.
Venmo is a cash transfer application that simplifies transactions between people and businesses. It also has a social media twist. Some would say it’s not a social media network, but the app adds a fun twist to make payments back to friends.
One of the most important aspects of Venmo is that you have a public history. This is a great way to keep track of the transactions between you and your friends, but it can easily backfire. You have to be careful about what you share if you want to keep these payments private. There are a couple of ways to do this: First, you can change your settings so that only you and the person you’re sending money to can see it.
Venmo allows you to do:
- Splitting of bills.
- Can pay money to over 2 million merchants.
- Can send money to different people.
- Can request for money.
What is the business model of Venmo?
Venmo found success because of its clever business model- one that was used by younger users. One of the main reasons Venmo’s business model was successful is because it solved the issue of splitting bills.
Payment apps like Venmo have made it easier than ever before to repay friends. No longer do they need to have cash on hand, they can just use their phone! Users don’t even need to worry about finding an ATM — just use the app!
Imagine if there was no Venmo. How would you repay your friends?
Not only does this app help people solve simple problems like splitting bills, but it also has a social newsfeed that lets users share the transfer history of their friends in an interesting way. You’ll never have to awkwardly remind your friends to pay you back again. It’s taken care of within the Venmo app.
How does Venmo make money?
Venmo application is free to download and use, so Venmo makes its money from transaction fees.
If you have a checking account attached to your Venmo profile, transactions are free.
When you need a fast transfer of money there’s a 1% fee for the privilege (minimum of $.25).
If you use a credit card or are a business using Venmo, there is a fee regardless of the total value of the transaction.
Venmo makes money from users because of their lack of interest in funds as well as a 3% fee for any credit card you have tied to Venmo.
Business owners can feel more than just a little responsible for making sure that their customers know how to pay them, and Venmo helps them do just that. The most revenue is made from business charges, and Venmo charges businesses a 2.9% fee on all transactions, which is the same as what a business would pay in credit card fees if their customer were to use one of those cards to buy something.
Venmo currently does not account for that much of the parent company PayPal’s revenue, but this is how Venmo makes money.
In the future, PayPal’s Venmo revenue will grow because more people are quickly exchanging money with apps.
How much is Venmo worth? (Valuation and Revenue)
It took almost three years for Venmo to become public. However, by September 2011, it was available to iPhone and Android users. A few months later, it was acquired by online payments provider Braintree for $26.2 million.
In a move that made a lot of sense, PayPal agreed to purchase Braintree, which included Venmo. This $800 million deal happened back in 2013 when PayPal was still an eBay subsidiary.
PayPal revolutionized how people pay online businesses. But it never developed a system for paying friends easily. Venmo removed all transaction costs and became a major hit for students and teens. It also gained the status of a verb: “Hey, Venmo me.
Venmo offers a 2.9% transaction fee for businesses and a 1% withdrawal fee for users who want to take money out right away. Over two million merchants accept Venmo in the US, and it usually takes 1-2 days for funds to be processed after a withdrawal.
Revenue of Venmo-
*PayPal estimates that Venmo revenue will reach $900 million in 2021
What is the founding story of Venmo?
Venmo was founded in 2009 by two classmates from the Wharton School of Business, Andrew Kortina, and Iqram Magdon-Ismail. Originally based in Philadelphia, the company relocated to New York soon after its founding.
In 2001, at a freshman event at the University of Pennsylvania, Kortina and Magdon-Ismail met for the first time. They both majored in Computer Science but later switched to other fields.
A few years ago, they started their first company during their senior year of college. My College Post was a classified site for college students. It was an experiment that became something more as they continued to grow and create. But as time went on and they found themselves in the adult world, they were compelled to make a change.
When Kortina and Magdon-Ismail first met, they both lived in New York and found themselves working for the same company (URL shortener bit.ly, founded by betaworks). Kortina was an engineer and Magdon-Ismail did software work.
In 2009, Magdon-Ismail visited Kortina in New York. Unfortunately, he forgot his wallet and she had to pay for the weekend. That night, the two began discussing how they could create a system that would allow for instant payment transfers to friends and family.
Venmo is a Latin word that means “to sell” and “MO” which stands for mobile. The original intention of Venmo was to allow people to transact using text messages. However, the actual invention was the funny messages patrons would attach to each transaction.
Venmo realized that the social aspect of its app was what attracted people to it. They added a social feed, which allowed users to check for what purposes their friends were exchanging money. The first investor for Venmo was a former boss from Ticketleap.
Key Statistics of Venmo-
- Venmo processed a whopping $159 billion in 2020. That’s 59% more than they did in 2019.
- The service generated $450 million in revenue last year, with PayPal predicting it will make $900 million in 2021.
- Over 50 million people use Venmo in the United States, and it’s incredibly fast.
- Paypal acquired Venmo in 2013 for $800 million, which is where it initially started.