How does this rapidly growing fintech offering work and does it leave room for financial institution-backed Zelle?
By Richard H. Gamble
This is bonus coverage from “The Need for Speed” in the upcoming June issue of CUES’ Credit Union Management magazine.
In a world where financial innovations like credit cards and ATMs catch on gradually, Venmo is a phenomenon, embraced enthusiastically by the millennial social media crowd. It has quickly entered mainstream vocabulary. People who say, “I’ll Google it,” now also say, “I’ll Venmo you the money,” notes Peter Olynick, senior practice lead for retail banking at NTT DATA Consulting Inc., Plano, Texas.
Monthly transaction value now exceeds $2 billion, according to Venmo spokesman Josh Criscoe. Venmo won’t reveal the number of transactions or average transaction size, but since most payments are small (minimum is 1 cent; typical size is a share of a meal, pizza or beer order), that’s a lot of transactions.
“The money moves very quickly from one Venmo account to another,” Olynick explains, where it often sits for hours or days. “And it’s a very clean user experience. You can move funds … on Venmo with five clicks. If you want to get the money out of Venmo, you have to transfer it to a traditional financial institution, which takes time.”
Indeed, Venmo users’ screens show funds moving from a payer’s Venmo account to a payee’s Venmo account in real time. Funds typically settle overnight, faster for Wells Fargo customers due to a special deal.
Venmo also has an agreement with Visa and MasterCard that will soon allow its accounts to be funded or defunded within 30 minutes, he reports. Notably, you can’t make an instant transfer from your Venmo account to your PayPal account, he says, even though PayPal now owns Venmo.
If a user wants to move funds from Venmo to a CU account, that’s another story—an ACH transaction, typically with next-day availability, Criscoe explains. The same goes for moving funds into Venmo from a CU account in the initial setup.
Most Venmo users keep a balance in their accounts for future use, Criscoe says. He won’t disclose the average or total balance, but he says that Venmo does not sweep those balances and use them for its own cash management.
Publically, Venmo welcomes its financial institution equivalent, Zelle, even though the companies look as they could be direct competitors in a face-off between financial institutions and fintechs.
“There’s plenty of room for multiple providers in the big transition from paper to electronic payments,” Criscoe points out. But notably, now that members—particularly millennials—have grown attached to Venmo, it may take time to move them to Zelle. With P2P, both payer and payee have to be part of the same network, so mass is critical.
With Venmo, payments is a social activity, a natural adjunct to sharing messages and photographs. “We’re about more than sending money,” Criscoe notes. “We’re a link in their social media experience. A lot of our users open Venmo multiple times a week whether or not they want to make a payment.” They’re looking at transaction records and hitting links other social media sites.
Richard H. Gamble is a freelance writer based in Colorado.