Venmo’s Success May be Hurting PayPal

February 2, 2017         By: Steven Anderson

venmoThere’s no two ways about it; Venmo has come a long way since the early days of security disasters and frightened users…as well as disgruntled former users.

The recovery has been positively spectacular, but with this comeback has come a few issues, including the very real possibility that this potent new business unit could be a bit of a market cannibalizer for PayPal itself.

Venmo processed a whopping $17.6 billion in payments in 2016, which is pretty impressive by any standard, but even more so given that only 25 percent of US adults, on average, turn to mobile devices at all to send money to other people.

Moreover, Venmo is just one option that PayPal can offer, and given the numbers, that means a whole lot of possible upside for Venmo.

It gets even more telling when we find that Venmo processed $5.6 billion in just one quarter, which is about how much it had processed in the entire two years preceding that quarter. Plus, this most recent quarter was actually the 14th quarter in a row that Venmo had seen over 100 percent growth. While that year-over-year rate is slowing up, it’s clear that Venmo is catching on in grand style.

That may be a problem for PayPal itself; Venmo’s transactions are fee-free. That means there’s not much profit coming out of these transactions, and Venmo’s sheer transaction volume is starting to cut into PayPal’s own total payment volume. Why use PayPal to transfer money with a charge attached when Venmo will do it for free? That’s a point that PayPal’s working to change.

There are only so many options here, admittedly. Charging a fee might well run off a lot of that business, depending on how many are turning to Venmo to save money. PayPal might work to expand Venmo, bringing it into stores and the like and charge the businesses for access, but given the margins many retailers are working with these days, this might be effective.

It’s entirely possible PayPal could take that block of users and consider ad support, but that might be too far-fetched for any worthwhile use.

PayPal has options here, but it needs to do something lest it wake up one day and find it’s been nurturing a viper to its bosom named Venmo.