How Does Venmo Make Money?
Posted by Frank Gogol in Financial Apps | Updated on June 20, 2023
People want easy ways to transfer and receive money nowadays, and one of their options is Venmo. But with Venmo being so widely used, many people end up wondering, “how does Vemno make money exactly?” This article will explain everything in detail to you.
What Is Venmo?
Venmo is a platform that allows you to make and receive payments. If you’ve used PayPal in the past, then you should be familiar with this type of platform. Venmo lets friends and family send money to each other through an easy-to-use app. You don’t require a card. Besides, you don’t have to look for your wallet and count how much you have to give your friend back for the restaurant meal he got for you. You just need a credit card that you can link to the app, and you’re set.
Venmo works online, so you need Internet access to send and receive money. On top of that, the platform is also great for those who want to make in-app purchases or pay for certain products or services online.
The service was founded back in 2009 by Iqram Magdon-Ismail and Andrew Kortina, who were roommates at the University of Pennsylvania. At that time, the agreement was for a text-only type of money transfer service. Later, in 2012, it became an actual app that the public could use, and it was accessible from Android phones or iPhones. Through peer-to-peer marketing, Venmo was able to make it possible for people to link their bank accounts or cards to the app.
Now, PayPal owns the app, and only people who live in the U.S. can use it.
How Does Venmo Make Money?
So, Venmo is used to help people send or receive money, but how does the app keep running? Many people wonder how Venmo is able to take their cut by letting people use their services. Are there any fees that apply when you withdraw money? Well, there are several ways Venmo makes money, and we’ll discuss them below.
Pay with Venmo
Pay with Venmo is a feature available for everyone who uses the app. Thanks to it, a user can purchase something from a certain merchant. So, if you want to make a purchase from one of the merchants that partner with Venmo, such as Urban Outfitters or Foot Locker, you can choose to pay with Venmo.
This is very convenient, especially if the user doesn’t want to use the credit card information to pay on the sites. Then, as the buyer uses Venmo to pay, a small fee applies to the order amount. Merchants are charged 2.9%, as well as $0.30 per transaction. Obviously, merchants will not hesitate to pay that fee, as it is for their benefit. By paying the fee and allowing Venmo payment, they will attract more customers, and it will still be great for them.
On top of that, there are many modern apps that do not integrate traditional banks. This means that on some sites, you may not be able to use your bank account. In this case, Venmo becomes a great option. With this in mind, it makes sense how Venmo would be able to take its cut.
Instant Transfers
Are you tired of transferring money from an e-wallet and then wait for several days until you see that amount in your bank account? Well, you can say goodbye to those days if you use Venmo, as it allows you to make instant transfers. This was announced back in 2019. Before that, transferring money to your bank would take 1-3 days, depending on the case.
When you transfer your money, you will also be charged a 1% fee on how much you send. There is a minimum fee of $0.25, and a maximum one of $10. The transfer only takes up to 30 minutes. With so many people requiring money as soon as possible, individuals are bound to use this type of instant transfer, which in return gives Venmo their share.
Interchange & Withdrawal Fees
Venmo started giving people debit cards in 2018. So, anyone who creates an account on the platform will have a debit card. With this, you’re able to go out with your friends and pay for drinks or dinner, or purchase different items. When you’re with your friends, you even have the opportunity to split the bill, which makes the Venmo app even more convenient.
The card is a Mastercard-branded one, and it allows Venmo to make money. Basically, the platform takes interchange fees from merchants. Then, the fees get split between both Venmo and Mastercard – thus, they take their share.
You can also retrieve cash, and this will charge you a small fee as well. For instance, ATM Domestic Withdrawal Fees will cost $2.50, whereas Over-the-Counter Withdrawal Fees will be $3.00.
Cash a Check
Cash a Check is a new type of service, as it was only launched in January 2021. The platform made this service available so users can then cash in their pay, as well as the stimulus checks offered by the government. There are a few requirements to make this possible, though.
You need a verified email address, and also a Venmo Debit Card or Direct Deposit enabled. To deposit the money in your account, you must take a picture of the check. First, Venmo will review it. If everything’s alright and it’s approved, the money will be deposited into your account.
For this service, Venmo will charge 1%. Also, keep in mind that you should cash in a minimum of $5.
Cashback Program
If you own a Venmo card, you will have the benefit of receiving cashback rewards from several merchants, such as Papa Johns, Dunkin’ Donuts, Chevron, and others. Through cashback programs, part of the price of the purchase will be sent back to your account. As a result, you may be more inclined to make purchases at these merchants.
As a result, the partner, aka the merchant that gives you the cashback, will pay Venmo a commission for referring the customer. As such, Venmo is able to earn from this service as well.
Cash Interest
Lastly, cash interest is also a method that allows Venmo to make some money. Venmo is able to use the cash in the accounts to lend it to different institutions. This could be a bank, for example.
Afterward, they receive interest from said bank. Statista shows that in 2019, the net interest margin was as much as 3.35% for every bank in the U.S.
Read More
- How to Add Money to Venmo
- How to Cancel a Venmo Payment
- How to Set Up a Venmo Account
- How to Close a Venmo Account
- How to Use Venmo
Conclusion
Venmo is an amazing app that becomes more popular as time goes by, particularly as people discover its benefits. Even though the platform allows users to send and receive money, that doesn’t stop them from taking their own cut. Withdrawals, instant transfers, and Venmo payments are some of the ways that Venmo uses to take fees from their users, which then allows them to make some money.
If you want to use Venmo, you just need to make sure you’re aware of these fees, so that you’re not taken by surprise.
