Issues : Technology

Venmo: Friend or Foe


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Venmo, a P2P leader that focuses on the millennial market, processed over $7.5 billion in transactions in 2015, and over $1billion in January 2016 alone. Now owned by PayPal, Venmo may not be a direct threat to banks, but it’s certainly worth paying attention to. Let’s dig in a little deeper_

The Good:
Venmo is a great example of the ease and convenience that consumers are looking for when it comes to payments. With the ability to connect by Facebook, phone number or email, anyone is able to transfer money within seconds once they have registered. Not only that, but users can insert emojis and comments for their friends to see. CEO Dan Schulman says that this social feature is what keeps the typical user visiting the app between four and five times a week without any intention of transferring payment. The opportunity for users to see what their friends are up to, not to mention the ability to pay anyone in their contacts or social circles with a process that’s both free and easy–now that’s any millennial’s dream.

Perhaps these social and convenience factors are two attributes banks should look at from an emulation standpoint.

The Bad:
Uncertain about the demand and worried about the costs, banks have been slow to add P2P payment to their consumer products arsenal. If Venmo is indeed making significant progress in providing payments for their customers, this poses a serious threat to their growth and profitability. Give the recent partnerships announced with companies such as Papa Johns and HBO, and Pay With Venmo–a new retail payments program rolling out just now thanks to PayPal—banks have a real problem on their hands as the fees they are used to receiving on credit and debit card transactions could soon be funneled right into Venmo’s pockets, leaving traditional FI’s out to dry.

Venmo has had its share of critics and bad press–and just recently it was announced that the Federal Trade Commission is investigating it for “deceptive or unfair practices,” so stay tuned.

Our Verdict: Foe
Any brand that customers choose to trust their money with over a bank is quite simply a threat to the traditional bank model. How should banks respond? Payveris or Popmoney, offered by Fiserv—a large provider of core processing services to the banking industry–are two examples of fintech solutions that offer up the same consumer proposition. But if banks really want to compete in this market–and not to be reduced to the dumb pipe that transactions flow through, they better act quick and work hard on promoting this feature to their audience. Loyalty is something earned–and right now, Venmo is doing just that. It’s time for banks to catch up!