Cash, Card, or Venmo?

Racepoint Global

Written by: Dory Butcher – Account Coordinator, Racepoint Global Boston

“Venmo me” is a term that is a frequently used phrase in the Millennial and Gen Z vocabulary. The peer-to-peer payment service even came out with a campaign last year called “Blank Me” that playfully left their own brand name blank in vague phrases to show that it has been verbified by its users, illustrating how ubiquitous the brand has become. Venmo has been able to rise in popularity thanks to the development of mobile finance technologies and the decreasing use of cash by Millennials and Gen Zers. This decrease in cash use was noted in a recent article by AdAge that stated that the “majority of people under 30 prefer to use cards over cash, even for transactions under $5.” With the two youngest generations shying away from cash, Venmo could not have come at a better time.

Since its launch in 2009, the company has made a name for themselves in the finance world; however, new verbs don’t just develop overnight. In 2012, Venmo was acquired by Braintree for $26.2 million, and then only a year later Braintree was acquired by PayPal for $800 million. Today Venmo boasts $12 billion in transactions in the first quarter of 2018 and $40 billion in transactions over the last 12 months.

Though Venmo may be the most popular mainstream name, they are not the only one to tap into this new industry. Other big names have created their own versions of this such as Apple Pay Cash, Zelle, and Square Cash. At their core, all of these companies serve the same purpose, however, each must do it a little differently to set themselves apart. For example, Apple Pay Cash is utilized only on iPhones (obviously) and is sent solely through iMessage. In contrast, Zelle is a peer-to-peer (P2P) money transfer service that lives within a consumer’s mobile banking app and is backed by 30 of the biggest banks.

Even big name social media platforms Facebook and Snapchat have tried to get a piece of the P2P transfer action. In 2014, Snapchat introduced ‘SnapCash’ in which it partnered with Square to allow its users to send money via the chat function of the app. However, this attempt was short-lived as more finance-focused companies rolled out their own versions. In June, Snapchat announced that it would be removing the SnapCash function.

With so much new competition popping up, Venmo has had to bring new innovation to their customers in order to stay relevant. In June, Venmo launched an all-new debit card that is backed by MasterCard. This move was likely in response to the growing popularity of Square Cash’s “black card” that allows each card owner to personalize their card by laser printing their signature onto their card. These cards serve the purpose of accessing the balance that is stored within the app, without having to transfer the money to a bank account.

What is most significant about this growing industry is how and why Millennials and Gen Zers are using these instantaneous transfer services. In a March 2018 interview, PayPal CEO Dan Schulman identified that due to Millennials’ and Gen Zers’ first-hand experience of the 2008 recession, they have become very money conscious. In speaking about Venmo he said, “Young consumers have embraced the app as a way to split purchases and keep a close eye on their finances.” With the feed capabilities of Venmo, users are able to look at their own transactions and easily keep tabs on who they paid and who paid them.

With the addition of the Venmo Card, more companies are picking up on the potential that may lie in the consumer’s Venmo balance. One company that is taking this to a whole new level is Abercrombie. Just last week they announced that shoppers have the option to pay with Venmo at checkout in the Abercrombie app as well as the Hollister app.  This retail store is the newest addition to the list of clothing stores that have rolled out this capability. Popular retailers such as Forever 21, Target, and J Crew are just a few in the growing number of Venmo friendly stores.

The addition of cards and retail affiliations is sending Venmo in the direction towards becoming the go-to facilitator of daily purchases and making traditional banks the system that collects and holds the funds. Their biggest challenge may be upgrading the nature of their social feed. As of now, the social feed allows consumers to add descriptions to their requests or payments between consumers only. Utilizing the comments section for business transactions might enhance Venmo’s brand-user experience, allowing for customization or real-time feedback. The idea of splitting or paying back between consumers will always be at the core of their business model, but they may need to significantly evolve their processes in order to move forward.

What does all this mean for the future of payments? For now, it is likely that retailers and individual consumer transactions will dominate the mobile payment space, but that doesn’t mean there aren’t possibilities for other brands to get involved. To do so, they will need to get to the core of why people are drawn to this service and innovate to take it a step further. These innovations will likely lead to improved security and user experience, as well as unexpected partnerships. Consumer-driven transactions could open many new doors for brands, but where those doors lead is yet to be discovered.