Venmo: All About PayPal’s Person-to-Person Payment Solution

Since acquiring Venmo, an increasingly significant amount of PayPal‘s (NASDAQ: PYPL) transaction volume comes from the person-to-person payments platform.

In this Industry Focus: Financials clip, host Shannon Jones and Fool.com contributor Matt Frankel give listeners an overview of Venmo’s impressive growth in recent years.

A full transcript follows the video.

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This video was recorded on Aug. 31, 2018.

Shannon Jones: First, let’s actually dive into probably what many would consider the most popular among the peer-to-peer payment apps, and that would be Venmo. Venmo was acquired by PayPal back in 2013, PayPal, ticker PYPL. Matt, what can you tell us about Venmo?

Matt Frankel: Venmo was acquired by PayPal in 2013. It allows customers to link their debit card, credit card, or bank account. They create a separate account for their Venmo payments, and they can easily move money between their account and their friends’ accounts, as you mentioned, just by knowing somebody’s phone numbers, or something like that. They can also link their payments to a Venmo MasterCard, by the way.

The thing with Venmo, the transfers are not instantaneous, which is the big drawback. An interesting statistic: although Venmo’s often thought of as the biggest one, Square Cash actually has more downloads as of recently, and Zelle is by far the biggest in terms of payment volume, by a significant margin. Anyway, Venmo is about a quarter of PayPal’s total payment volume. This is a big part of PayPal, even though, like I said, Zelle is a little bit bigger. We’ll get into why in a minute. For example, during the second quarter, Venmo processed $14 billion worth of payments. That’s a lot, but the more impressive statistic is the rate at which it’s growing. That is 78% larger than it was a year ago. If this growth rate continues, it could eventually turn into a pretty big revenue stream for PayPal all by itself, and in other ways we’re going to talk about a little bit later.

Jones: Yeah, and one interesting thing with Venmo is that it has a social media feature built into the platform, as well, which has kind of been debatable in terms of its utility. But really, with social media, basically, when I went in and actually split a gift for my mom with my sister and brother in law, I was able to put in a couple of emojis to signify that this was a gift. By default, when you make a payment through Venmo, it is public. Now, of course, you can change the privacy settings. But it’s actually kind of interesting to go in and see the feed of all these different users on the platform, and all the quirky and funny things that they put into the feed. I highlight that because I think that is a really interesting play on Venmo’s use of creating that stickiness factor. How do you get people coming back to these apps, not just for making or splitting the cost of a bill for dinner? How do you get people coming back to this more and more? I think that’s one of the unique features of Venmo, that social media feature. Ultimately, we’ll get more into how they can continue to monetize. Obviously, among the big three, this one is definitely the most well-known.

Matthew Frankel, CFP owns shares of SQ and has the following options: short December 2018 $90 calls on SQ. Shannon Jones has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends MA, PayPal Holdings, and SQ. The Motley Fool has the following options: short September 2018 $80 calls on SQ. The Motley Fool has a disclosure policy.

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