It’s hard to imagine attending business school in a pre-Venmo world. Today, Venmo has become so routine among millennials that it’s easy to forget the days of “which bank do you have?” “Let me search for my checkbook” or “I owe you $10 when I get cash.” To “Venmo” has become a verb and this year $40B in transactions is expected to be “venmoed”.4 To get to this point was not an easy ride, however. It was one filled with credit card fraud, money laundering, and skeptical users. But what could be so compelling that users are willing to give all of their bank account information to a startup? Walking through the customer experience of transferring money through a bank account verse through Venmo illustrates why.
Transferring through a bank account
A group of friends share a dinner and the restaurant cannot split among five cards. One friend pays and the others promise to pay her back. At a best case scenario, the friends all have the same bank. Each friend logs into their bank account entering username and password information, goes through a few clicks to get to transfer, look up the friend’s phone number and triple checks to make sure the number is correct, then transfers the money. If the friends don’t all have the same bank, they may have to pay transfer fees and wait several days for the money to clear. Chances are at least one friend forgets to transfer leaving the friend that is owed money in an awkward position.
Transferring through Venmo
In the same scenario, the friends don’t even ask to split the check. One friend offers to pay, everyone else immediately pulls out their phones and without logging in, transfers money in a few clicks, picking fun emojis to represent their. Because most people login through Facebook or use the “friend” feature, finding friends is easy and you can assure you have the correct person based on their picture. Friends who you interact with most rise to the top of the list making it even easier. Money is immediately deposited into your Venmo account at no cost and is ready to use. If that one forgetful friend does not pay right away, the friend who paid can send a Venmo request for the amount owed as a gentle reminder. Friends can then see a live feed of off their friends’ transfers making it a fun social experience. There is also a virality aspect to it in that no one wants to be the one friend that doesn’t have Venmo so even people who are concerned about security breaches are often peer pressured into downloading the app.
Moving beyond peer to peer payments to caputre value
Venmo was acquired by Braintree in 2012 for $26.2M1 which was later acquired by Paypal in 2014 for $800M2. It has since become clear that Venmo will not stop at peer to peer payments. They announced in October that users can shop and pay with Venmo at over two million online US retailers3. Venmo will offer purchase protection on items purchased. The Venmo feed will then display the retailers name and logo providing valuable exposure to the retailer. Venmo will charge the retailers for this service. This is a significant shift toward their goal of becoming a digital wallet and helping “consumers spend wherever and however they want to pay, regardless of device.3”
Venmo’s value stretches beyond typical retailers as well. Service providers can accept tips from customers who do not carry cash and charities can accept donations with the click of a button making it easier than ever to donate3.
While Venmo is currently winning in the peer to peer payments space, the question remains if they can sustain their spot at the top. A consortium of top banks including Bank of America, Wells Fargo, and JPMorgan Chase have created their own peer to peer system called Zelle5. While they claim that almost 100,000 consumers are downloading the app every day, it is unclear if they will be able to steal share from Venmo5. As of today, Zelle is unheard of by many and has a rating of 1.7 stars in the Android store as opposed to Venmo’s 4.7. With little to no friction in the Venmo user experience it will be interesting to see what angle the large banks take in order to steal share.