Do you have to pay a smaller amount of money for buying food, having dinner with friends and paying bills on a daily basis and find it hard to keep all of the money in your pocket all the time? Well, Venmo is there to help you organize your money while paying all the dues with just one click.
Venmo is one of the successful financial payment apps which has raised its users into millions in just a small span of time. It is a free app for all the users while providing multiple services besides making transactions between two Venmo accounts. You can have your Venmo debit and credit cards and use them at your ease for shopping online and making real time transactions.
If you wonder how does Venmo make money despite being a free app, this article will elucidate for you how the app works and how it generates its revenue.
What is Venmo?
The mode of payment has largely been revolutionized since one or two decades. Digital payments have taken a great lead in which the mobile apps have a great role to play. Venmo is one such app that has eased the mode of digital payment. According to one survey from McKinsey and Co survey, 82% of Americans used digital payments for their day-to-day expenditures. It is more than the previous year which was 76% and 72% respectively. This shows the ease of digital payment and its acceptability in the population.
Venmo is one such peer-to-peer payment app that is operated both on Android and iPhone that allows individuals to transfer money in a quick and easy way. The app is an easy go for friends and families who want to split their bills, event tickets, rent, or dinner. If the sender and receiver live in the United States the transaction takes seconds to finish. In the first quarter of 2018 alone, the company held a $159 billion transaction.
Launched as a text message-based delivery system in 2009, the company grew and introduced an integrated social network in an effort to capitalize on the model of the P2P economy in 2012. In less than six months’ time, the company was acquired by Braintree, which is a mobile payment system utilized by Airbnb, Uber, and other e-commerce giants. And after a year, the company was owned by Paypal that boosted the user base of the app. Today, the app has 50 million active users.
How does Venmo work?
Venmo works like a virtual middleman between the transaction of two bank accounts. Once an account holder installs the app, he links the Venmo app with his debit card, credit card, or checking accounts from where the individual can make transactions to anybody who has Venmo installed in their phone.
Consider this scenario where a person is buying a pair of shoes for $60, instead of sending the bill from his bank account, the person will make a transaction via his Venmo account which is linked with his bank account. The amount will be deducted from his bank account and will be added to the shopkeeper’s account.
When you want to send or request the money for another account, you tap the pay or request button in the Venmo app. It will then ask you about the phone number, email address, or user name. If you are receiving the amount, you have to share your bank account or user name, the money then will be transferred from your account to your friend or any other account whose username you entered in the app.
You can transit the money for minor bills and checks but the functionality of Venmo is way beyond that, you can use Venmo for:
- Make a purchase from Venmo’s MasterCard anywhere in the United States where Mastercard is accepted.
- Use an in-store QR code to make any purchase via Venmo.
- Signing you for direct deposit for your paycheck to go straight to your Venmo account. It can be done up to two days earlier than your usual payday.
- Paying for purchasing through apps and mobile websites from authorized Venmo partners.
- Receiving price alerts from about four types of cryptocurrencies (Bitcoin, Bitcoin Cash, Ethereum, Litecoin). You can buy, sell and hold these cryptocurrencies through Venmo.
Since Venmo works like a social media platform, you can send emojis and messages to the person you are sending the amount to. It can create a fun chat with your friends if you are out grabbing a pizza and you split the bill between each other.
You can add friends in your Venmo app which will help you track your transaction history and also tell you that you have sent the amount to the right person. You can add people who are not your friends just to make sure that you have sent the amount to the right person because Venmo does not reimburse you the money you have wrongly sent to any person. The one added to your friend list will have his profile picture and you will have your own too, it will help the sender and receiver to confirm that the transaction is done between the right individuals.
How does Venmo make money?
It is amazing to know that this incredible app is free to use but it charges the users for some special features. That’s how the company generates its revenue. Following are some of the primary fees that it charges to the users to ensure the smooth functioning of the app for the users.
- Instant transfer fee
Usually, it takes one to three days to transfer money to a bank account but if you need to add cash to Venmo right away, you can transfer it within a day through an instant transfer for which you will pay 1% of the amount you add.
- Processing fee
The Venmo transaction from the bank account and debit account charges no additional fee but the account that is linked with the credit card will incur a 3% processing fee for your charges.
- Merchant fee
Primarily, the Venmo app is for P2P transactions but you can pay the amount to the merchants too who accept from Venmo. You have to pay 2.9% of the charges’ fee and 30 cents for each transaction. It works in a similar way if you pay a merchant through a credit card.
So, Venmo doesn’t charge its users any fee for the transaction that is done between a linked bank account and linked debit card to your Venmo account or a simple transaction between two Venmo accounts. But it charges some fee for the following premium features that help the company to generate revenue and help users to enjoy additional features. These fees include:
- 3% fee when you use your credit card to make any transaction
- 1% for using any check-cashing feature for faster deposits of payrolls or government checks
- 5% for using any check-cashing feature for faster deposits for non-payroll or non-government checks.
- A fee ranging from 50 cents to 2.3% for buying and selling cryptocurrencies
- 5% fee for instantly transforming money from your Venmo account to your eligible linked debit card or bank account.
Is there a Venmo card?
With Venmo, you get to use Venmo debit and credit cards. As usual debit cards, you can shop at participating merchants. This debit card is connected to your Venmo account which is powered by Mastercard. You can also use it as an ATM from which you can get cash up to $400 on a daily basis. If you want to use it out-of-network, it will cost you a $2.50 fee.
In the case of a Venmo credit card, you can make contactless payments, split dinner bills with your friends, request new virtual account numbers, and earn cashback on your purchases that will ultimately go to your Venmo account. You will be charged 3% cashback on your top spend category, 2% on the second topmost, and 1% for anything else that you purchase.
The Venmo credit card is a Visa issued by Synchrony Bank and it has no annual fee. All Venmo account users are eligible to apply for a Venmo credit card. If you want to have one, you can apply for it.
Common questions asked for getting a Venmo credit card
- How can I apply for a Venmo credit card?
The Venmo credit card is currently available for every Venmo account holder. If you are eligible, you will see a Venmo credit card section in the Settings menu of your app. You can visit the section and apply.
- What information do I need to apply for a Venmo credit card?
While applying for a Venmo credit card, you will be asked about the following information:
- Your name
- Email address
- Phone number
- Residential address
- Date of birth
- Last four digits of your social security number
- Annual net income
- Does the company run a credit check as part of the application?
Yes, the credit is checked in order to determine whether the application be approved or declined.
- Should I check to see if there’s a freeze on my credit report before applying for the Venmo credit card?
If you currently have a freeze on your credit card report, it is needed to remove it first and then apply for the card.
- Do I need a Venmo account to apply for a Venmo credit card?
If you want to apply, use and manage a Venmo credit card, you need to have a Venmo account already that is active for at least 30 days. If you want to close your Venmo account, you are required to first close the Venmo credit card and pay off its balance in full before closing your Venmo account.
- What is the APR? What will my credit line be?
The APR and credit limit are based on your creditworthiness and other factors. They will be determined once you open your Venmo account.
- Can I jointly apply with my spouse?
Since the Venmo credit card is not meant for joint users, you are currently unable to create an account for joint or authorized users.
- I am approved for the Venmo credit card, when I can get it?
After applying for the Venmo credit card, you can expect to get it in 7-10 working days. In the meantime, if you want, you can shop online using your virtual card number.
Who can use Venmo?
There are three requirements from the users to use the app:
- The user should be located in the United States
- Users should have US cell phones that can send and receive shortcodes; shortcodes are fixed to six-digit numbers for texting
- The user should be at least 18 years old (in most cases)
If you want to transfer money from your Venmo account to your bank account, you must have a US bank account or debit card through which you can make instant transactions to your account using your Venmo account. If you don’t have access to the amount in the Venmo account, you must add a U.S bank account, debit card, or credit card in order to initiate the payments.
How much time does it take to transfer money to your bank?
You can transfer money from your Venmo account to your bank account but the type of transaction you do takes a different time for each type of transaction. For instance, if you are transferring from your Venmo account to a linked U.S bank account, it will take three business days with no fees.
But if you want to transfer from your Venmo account to a linked bank account, Visa card, Mastercard debit card in 30 minutes, it will cost you a 1.5% fee. This instant transfer can be done in 24 hours and 365 days of a year.
How much can you transact?
Initially, you are required to install the app and set up your banking information in order to connect the Venmo account with your bank account. The initial per week transfer is $299.99 until you verify more about your identity.
You become verified when you submit your social security number, ZIP code, and birthdate and after that, you can send money up to 4999.99 per week in one transaction or multiple transactions. The maximum amount you can transfer from the Venmo account to the bank account starts from $999.99 per transaction but once you are verified, that amount goes to $19,999 per week.
Is venmo safe to use?
All the applications that are connected to the internet are vulnerable to cyber attacks that are unintended and always unexpected. Since Venmo is directly linked to consumers’ bank accounts, it is always the demand from the users that safety safeguards should be taken to the highest standards.
Venmo uses encryption technology to protect its users from any data theft or unauthorized transactions. The application gives the option of logging out in case the user has lost his phone or it got stolen. They can also set up Pin codes for personal safety.
Unfortunately, there are cases reported of payment loss from users’ bank accounts because, despite the safety measures, hackers get multiple routes to scam the users and hack their accounts. They can gain access to the bank account information of the Venmo user, after that, they can easily transfer the user’s Venmo balance to another bank account.
Also, they can change the user’s linked email address and reroute transaction notifications leaving them in the dark until they come to know about the transaction changes long after it has been done.
The company has undergone many complaints about security, slow customer response from the company in cases of breaches, and failure to protect the privacy of users. These complaints show the shortcomings of the company to address the issues but also require the need from the company to take the complaints seriously and deliver in a positive way to resolve the issues.
In regard to this, the company reached a settlement with the Federal Trade Commission (FTC) concerning the company’s failure to secure the privacy of the users and disclose the information to customers about privacy settings. In their efforts, the FTC also found that the company has also breached safeguard rules, which require financial institutions to implement safeguards to protect the security, confidentiality, and integrity of customer information.
The settlement that the company has reached with FTC subjects it to biennial, third-party audits of its compliance efforts for 10 years. If the company is violating any of these terms, it will result in a heavy fine of $41,848 a year.
What steps Venmo is taking to ensure safety?
Overall, it is safe to use Venmo. But to protect the users, Venmo takes multiple authentication measures to ensure that the privacy of users is intact and that they are satisfied using the app.
For that, above all, when you install the app, Venmo verifies your identity by asking you to confirm the code that it has sent you via the phone number or email. The app is already cautious that it is designed to make the transaction easier among friends and people who know and trust each other and avoid payments for goods and services unless Venmo authorizes them for you.
It asks for the verification of the users, without verification, you won’t be allowed to make payments. However, you can still receive money and transfer funds to your bank account.
Since the app is like a social media platform, it lets users opt for a public, private or friends setting that allows the users to be seen by the people of their choice. Users can choose the privacy according to their convenience or whom they want to show their activity on the app.
The Identity Theft Resource Center has warned that since the Covid-19 pandemic, scammers are active in targeting Venmo and other cash apps so the users have to be extra cautious about any unexpected changes regarding the services of the app.
Following are some of the common scams that are being used by the scammers to attack the users that you should remain cautious about:
- Sending email or text messages to the users that they have won a prize from Venmo and should send their account details
- Calling Venmo users to share their account details so that they can receive the winning prize
- Calling Venmo users and pretending that they are from Venmo tech support or customer care
- Selling something to a stranger who tricks you into believing that they have paid for an item or service while in fact, they haven’t paid anything for you.
What safety measures can you take?
However Venmo takes precautionary measures to secure your data and make you satisfied with their services by verifications and using encryption technology, but you should always take extra care when it comes to protecting your account and balance. Here are some of the tips you should use to keep your account safe.
- Set a pin to your app: although it is not a necessary requirement from the Venmo app to set a pin, it is a smart decision nonetheless to set a pin for your app. It will stop or at least slowdown anyone who wants to do a transaction from your app without letting you know about it.
- Don’t pile up Venmo bucks: use your Venmo account for making smaller transactions and not lots of money sitting in your Venmo account. Once you are paid the money or have made transactions, move the remaining amount to your bank account. The Venmo money is not insured by the FDIC or protected by many banking regulations. You can leave a few dollars for the Venmo balance that you can use at the time of need but don’t make it to the triple-digit of the amount in the Venmo account.
- Deactivate transaction sharing from both sides: never leave your account setting to the public or even friends. It is better to make it private. Don’t broadcast the payment when you make transactions and disable sharing of ‘transactions involving you’ in the privacy setting.
- Pay a very limited group of people using the app: you should limit the circle of people you share the payments with.
- Refrain from using Venmo to buy things from online classified websites at all costs unless they are authorized by the company for you.
- Be aware of scammers: If you receive an email, text message, or call asking for your password or other personal information relating to your account, don’t respond. Venmo never asks for personal information from customers and urges users to send emails to email@example.com if they are confronted with any suspicious activity. Venmo will take care of it and will make sure that your data is safe and secure.
In case you have overshared or had any reason to believe that your payment or personal information was compromised, keep a close eye on your financial accounts or payments that you do with people. Regular monitoring of your credit scores is also recommended because if your credit scores suddenly drop, it means that your identity has been stolen.
On a normal day, we have to give money to so many people for shopping, bills and buying food, etc. for each thing we purchase, we have to pay to so many people in one day. It can be a friend, family member, or merchant. Digital payment has made this job much easier where you don’t have to worry about money lost from your pocket or if you don’t have enough money in your pocket.
Venmo is one such digital payment app that is there to ease your day-to-day transactions as it is a P2P financial app. You can use it at your ease while not being worried about any money lost.