With over 83 million users, Venmo is one of the most used digital wallets in the US. It’s convenient for sending and receiving money, paying for services from merchant partners, and allows users to split restaurant bills. It’s also the go-to mobile payment network of Gen Zers and Millennials.
Compared to other payment services, Venmo allows its members to interact via chat and doesn’t charge any fees for transfers within its network. So, how does Venmo make money?!
In this article, we’ll take a closer look at Venmo’s business model and other aspects that make it such a revolutionary financial service.
How Does Venmo Make Money Without Fees
Instead of imposing fees for P2P transfers on the app i.e., sending money from one Venmo account to another or from a bank account and debit card, the company has fees for its premium services. For instance, it has fees for using its ‘Pay With Venmo’ feature and every instant transfer, interchange, and withdrawal.
In addition, Venmo makes money through cash withdrawals, charging spreads and fees on cryptocurrency transactions, and cashing checks. The platform also earns affiliate commissions from its cashback program.
The Venmo Business Model
As a free peer-to-peer mobile payment network that focuses on simplifying the process of transferring money between individuals, Venmo’s business model focuses on attracting as many customers as possible to whom it offers additional, chargeable services.
To ensure its users spend as much time as possible on the Venmo app, the company has designed its platform to be very similar to Facebook Messenger. Thanks to its familiar look, Venmo is less seen as a transactional platform and more like a communication one. In fact, its social aspect is the key feature that makes it so appealing to younger consumers.
Additionally, it allows its users to connect their debit card to the Venmo app so they can use it as a standard card. And it makes it possible to receive paychecks through connected accounts and earn cashback from retailers in the Venmo network. Below is a detailed list describing all the aspects of the Venmo revenue model.
Pay With Venmo
One of the ways Venmo makes money is by charging merchants in its network for processing their transactions. It basically allows customers to purchase goods and services from merchants authorized to use Venmo, such as Adidas, Amazon, Uber Eats, and Walmart.
When paying with the Venmo app and a QR code, businesses are charged 1.9% of the transaction plus 10¢ per transaction. The fees for online payments are higher. Venmo charges merchants 2.9% of the size of the transaction, and an extra 30¢ for the transaction itself.
Instant Transfers
In 2019, Venmo introduced the option for users to transfer funds into their bank accounts instantly, without waiting for one to three business days for the funds to be available. With Venmo Instant Transfer, users can access the funds within 30 minutes.
Venmo makes profit on Instant Transfers by incurring a fee of 1.5% of the amount transferred, with a bare minimum instant transfer charge of 25¢ but not exceeding $15 per transaction. The standard electronic withdrawals remain free for Venmo users.
Credit Card Interest
Members who qualify for a credit card as per Venmo’s policies can get one with 0% APR for the first 15 months. After this, Venmo credit card holders will have to pay a variable APR of 19.49%, 24.49%, or 29.49%.
Interchange and Withdrawal
This is a service Venmo introduced in 2018 when it launched its Mastercard-branded debit card, an option available to anyone who has a Venmo account. The company also offers a Visa card which enables users to make traditional purchases and pay with funds from their Venmo account.
Interchange and withdrawals are another way Venmo generates revenue. Specifically, it charges a $2.50 fee for ATM withdrawals and a $3.00 fee for over-the-counter withdrawal transactions. And even though these two services do not earn the company as much money as Pay With Venmo, they do add to the bottom line.
Cash a Check
In January 2021, Venmo introduced its cash-a-check feature. It’s a feature that not only helps Venmo make money but adds another level of convenience to members, allowing them to cash in their paychecks or government stimulus checks.
The requirement for using the cash-a-check feature is for the amount to be between $5 and $5,000. Venmo members who wish to cash in their government or payroll checks are charged 1% of the total amount. The fee for other types of checks is higher, or 5%.
Another requirement for using the service is for the user to have a verified email address, enable direct deposit, and sign up for a Venmo debit card.
The Venmo Cashback Program
Venmo cardholders get cashback rewards for using their cards to shop at stores that are in the company’s network, like Chevron, Target, and Dunkin’ Donuts.
Venmo earns money from this by getting a referral commission based on the number of transactions it brings and the type of contract they have with the partner. Currently, Venmo does not disclose any information on the size of its referral commission.
Cryptocurrency Fees
As of June 2021, Venmo users can purchase and sell Bitcoin, Bitcoin Cash, Ethereum, and Litecoin through the platform. And even though it doesn’t charge a fee for holding cryptocurrency, it does charge for the transactions made with crypto. In fact, Venmo earns money from its crypto service in two ways – transaction fees and spread.
The fees for buying or selling cryptocurrencies range from 49¢ for amounts between $1.00 and $4.99 to 1.80% for amounts in the $200-$1000 range, and 1.50% for amounts higher than $1,000.
Venmo also charges the spread or the difference between the market price the company receives from Paxos (its trading partner), and the exchange rate of US dollars to crypto assets.
Is Venmo Profitable?
Yes, Venmo is profitable, and at the end of 2022, the company generated revenue amounting to a staggering $935 million. This not only notes an increase compared to 2021, when the company’s earnings amounted to $850 million, but it sets a new record for Venmo.