I like Venmo

October 29, 2011

What is Venmo?

Venmo is a mobile/web App that allows me to send payment using credit card and bank accounts. Unlike Paypal or other complicated services, you can get it setup within a minutes. People can send money using an email or a phone number. You can hold your balance on your account and take it out to your bank account whenever you want.

I like it as a customer

I have been using Venmo for couple weeks. I love it because I dine out everyday and splitting bill is pain in the a$$ since nobody carries around cash. It is an easy way to payback someone from your credit card or bank account without hassle. Since the sign up process is easy and quick, you can also tell your friend to download the app and receive the payment right away. The most important thing is, the receiving end doesn’t have to put in credit card info nor Bank account info until they want to add the fund or withdraw the $$$.

the Catch

If you know how credit card companies make money, you would be wondering who is paying for the credit card commission, the payer or the payee. The answer is neither. I don’t know what deals Venmo has with Visa, AMEX and MasterCard, but I am assuming they are using VC fundings to cover that cost.

Business perspective

This is brilliant Sales strategy for Venmo.

Anybody who starts using this app will probably start in small amounts. People will have no problem funding the payment through Credit Cards at first. When users get good amount of money in the account, they will probably link in their Bank account to withdraw the funds. Once a user have a bank account setup, they can lower the credit card limit and encourage the users to user bank account.

Linked Bank account means less money holding

Imagine 10,000 people using Venmo having $25 each on their Venmo balance. They haven’t linked their bank account so they can only hold on to it or use it to pay someone else. That is $250,000 cash sitting on Venmo’s bank account. If users have bank account setup, with a push of a button, they can empty the Venmo balance to their bank account. I am sure interest from this money holding is tiny part of their total profit, but it something to think about.

So… how are you going to make money Venmo?

Paypal allows free money transfer between users but gets commission from merchant sale. Venmo currently encourage stores to open up regular Venmo account and accept money as if it was receiving from a friend, which means no commission. There are couple very interesting ways to generate profit, but here are some obvious ones they will probably have to use if they want to keep alive.

Future??

I love when startup companies challenges 800-pound gorilla like Paypal. Currently, Venmo has two advantages over Paypal which is working very well towards their advantage.

Waiving credit card transaction fee could be a good way of attracting customers at first, but won’t last long. They should integrate other features like Bump or bill splitting applications.