KBW Examines Issue of Venmo Fraud in Latest Mobile Payments Report

November 29, 2018         By: Steven Anderson

Venmo has been the darling of the mobile payments market for some time, demonstrating clearly the value of peer-to-peer transactions. Yet a new report sent our way from Keefe, Bruyette & Woods (KBW) reveals that things haven’t gone Venmo’s way in the field lately thanks in large part to a growing fraud picture.

The problem effectively boils down to one point: Vemmo’s losses due to fraud are larger than those expected, to the point some of the features were pulled directly out of Venmo, including the instant money transfer option. That’s a big enough problem for anyone, but the KBW analysis gets even more interesting from there.

First, KBW starts out with a bombshell; apparently, Venmo outright questions the accuracy of the facts contained in the Wall Street Journal piece which covered the fraud loss issue. KBW itself, meanwhile, asserts that, even if the WSJ’s facts were dead-on, it wouldn’t matter a lick.

KBW notes that “…even if the stats are correct, the ultimate bottom-line impact from the increased fraud and the lower C2B volumes in 1Q18 is generally immaterial to earnings.” The first quarter of 2018 featured an operating loss of about $40 million, which was about 40 percent higher than management had projected.

Yet, PayPal brought out several new initiatives in that same time frame, and new initiatives are commonly unusually high vectors for fraud until the bugs are ironed out. Even with this all in mind, Venmo’s average losses are actually lower than the average losses for PayPal, KBW notes.

Basically, there might have been some extra fraud in the system in this time, but its causes are less than conclusive and its impact likely less than relevant. That’s likely true to some extent; any system that handles money in any large quantity has to have some fraud in the system. The target is just too tempting for some not to take the run at it.

This would be different if this event were a sign of pernicious fraud inherent in the system, but right now, this is just one unusually cheaty stretch in an unusual time for the business. It’s worth watching, of course, but it’s a safe bet that those numbers will go down in short order as the bugs are addressed.