Go to dinner with a group of HBS students and it is more than likely that you’ll end up splitting the bill with Venmo. As most of us can attest, the mobile payments app has rapidly become a part of young adults’ weekly, if not daily, lives. With an acute recognition of its customers’ preferences, a simple and intuitive interface, and strong network effects, Venmo is rapidly (even virally) making its impact in peer-to-peer transfers, replacing cash and checks among young adults.
Recognizing What Your Customers Want
Venmo’s focus on the attributes that matter most to millenials has been a primary driver of its success. Whereas many traditional banks have focused on building out a large network of retail branches and ATM locations to best serve their customers, Venmo has capitalized on the fact that millenials prefer not to carry cash and rarely visit banks, opting instead for digital deposits and transfers. Perhaps most important to its customers, payments through Venmo are free of charge to users linked to a bank account or debit card.
Simplicity and Convenience At Your Fingertips
Venmo’s success is also largely in part to its ease of use. The mobile app’s simple and intuitive interface is user-friendly and easily links to a bank account or credit card. It allows users to make payments when and where they want. Finding other users requires a simple search of a users’ contacts ofrFacebook friends (name or phone number also work), and users can both make payments and request or remind other users of payments they may have forgotten. Venmo even caters to the way in which millenials typically communicate. Making a payment is as simply as sending a text message. When prompted to enter a description for a payment, users are shown relevant “emojis” to describe the payment.
Leveraging Network and Social Effects
Arguably most important, Venmo has cemented its success by leveraging network effects. Its wide user base makes it the obvious choice for payments and serves to lock in customers. The more users it gains, the more valuable the service becomes. Users themselves often do much of the customer acquisition for Venmo, asking friends to download the app to pay them. Among many social groups, not having Venmo can become a real inconvenience. As such, Venmo has seen viral adoption among some user groups, particularly on college campuses. Venmo is so ubiquitous that its name has become a verb: users agree to split a bill by having one person pay and the others “venmo” him or her.
Venmo has also leveraged social effects to engage its users. The Venmo news feed shows descriptions of payments between users’ friends (although no dollar amounts are disclosed), keeping users up-to-date on their friends’ activities.
Launched in 2012 (after two years in beta testing), Venmo was purchased by Braintree just five months later for $26.2m. In 2013, PayPal acquired Braintree. Venmo processed $2.4b in total payment volume in 2014 (although small compared to PayPal’s total payment volume of $228b, 20% of which was from mobile). Venmo generates no revenue on peer-to-peer payments, but it is rapidly establishing a huge user base that it plans to eventually monetize. That user base should in turn draw merchants, to whom Venmo can charge a fee on transactions. With mobile payments in the U.S. expected to reach $90b by 2017, this represents a huge opportunity that Venmo is well positioned to capture.
 Robehmed, Natalie. “Venmo: The Future of Payments for You and Your Company.” Forbes. July 2, 2013. http://www.forbes.com/sites/natalierobehmed/2013/07/02/venmo-the-future-of-payments-for-you-and-your-company/
 PayPal Q4 2014 Fast Facts. https://www.paypal-media.com/assets/pdf/fact_sheet/PayPal_FastFacts_Q4_2014_FINAL.pdf
 Gillette, Felix. “Cash is for Losers!” Bloomberg Business. November 20, 2014. http://www.bloomberg.com/bw/articles/2014-11-20/mobile-payment-startup-venmo-is-killing-cash