KBW Weighs In On Mobile Payments Firm Venmo’s Rate Hikes

To listen to some in the financial sector, it would be easy to think that Venmo’s recent rate hike is a disaster on par with the worst. I’m not exactly in favor of it myself, but the folks at Keefe, Bruyette, and Woods (KBW) sent word our way about their take on the Venmo rate hike, and the recrimination coming off KBW is almost shockingly mild.

To sum up, Venmo has upped its consumer-facing fees for instant transfer of funds to debit and checking accounts to one percent of the total, with a minimum fee of $0.25. This is up from the previous standard, a flat fee of $0.25 per transaction. KBW’s take on this starts with a simple yet blunt assessment: “Likely negligible impact to numbers near term but potentially reflective of pricing power.”

By way of clarification, KBW explains that 17 percent of Venmo users have been involved in a “monetizable experience” by the end of 2018’s second quarter. Instant withdrawal has seen the most rapid adoption rates so far, which suggests that this is indeed a valuable feature for users. KBW goes on to note that the instant deposit transactions aren’t generating much more than a couple of million dollars annually; thus, any change in the rate may not have much impact on Venmo’s, and therefore PayPal’s, bottom line.

What this reflects more than anything, KBW notes, is that instant deposit is in high demand. Venmo’s price hike is actually similar to a price hike engaged in by Square Cash. Square Cash went from one percent to 1.5 percent. KBW even suggests that this is mostly being done for PayPal to demonstrate to investors how Venmo can be monetized just to keep confidence up.

These are valid suggestions, but I can’t help but think that hiking rates without providing added value isn’t exactly the best course of action. Just expecting users to stick around even after a price hike that doesn’t give them anything more than they had already isn’t a good way to keep those users in the fold.

With so many different mobile payment platforms, and progressively more of which are embracing the peer-to-peer (P2P) concept that made Venmo what it is today, rate hikes may ultimately do more harm than good.