How Venmo Makes Money | Nasdaq


Pay Pal (NASDAQ: PYPL) included an interesting piece of information in its fourth quarter earnings update. Venmo, its peer-to-peer payment app, ended 2018 with revenue of $ 200 million.

Monetizing Venmo has been a big challenge for PayPal, especially since Square (NYSE: SQ) has shown excellent progress in finding ways to monetize your Cash application . PayPal has largely taken to copy some of the same monetization efforts as Square, including instant withdrawals to bank accounts and the development of an account-linked prepaid debit card. PayPal has also made strides in attracting merchants to its Pay with Venmo feature, which works just like PayPal’s core functionality.

Here’s how Venmo’s $ 200 million revenue rate breaks down by product, and a look at how that might change going forward.

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Image source: Venmo.

Diversify your sources of income

In October, PayPal management told investors it processed $ 1 billion in instant transfers from Venmo in September. Back then, Venmo only charged $ 0.25 per transfer, regardless of the amount. He increased that to 1% with a low of $ 0.25 in October.

If PayPal has maintained this volume following the price increase, that suggests around $ 120 million in annual revenue from instant transfers to Venmo.

Management says the split between instant transfer income and commerce-related features – the Venmo card and Pay with Venmo – is around 50-50, not 60-40 as its previous disclosure suggested. Perhaps the rate change hampered the growth of instant transfers, perhaps even costing it volume. Either way, the management commentary suggests that commerce-related features are driving revenue growth for Venmo.

Management also said the separation between the Venmo card and Pay with Venmo is about equal with a slight edge on the card. Both products rely on a small percentage of each payment made through their respective mechanisms.

So the current income distribution looks like this:

Data source: Approximate based on feedback from PayPal management. Chart by author.

Where will growth come from?

Ultimately, PayPal management sees a lot more promise in its basic online payment platform than in facilitating fast money transfers or payments with a linked debit card. “I would expect all three of you to think in order – [instant transfers] being the largest, the card being the second largest, then Pay with Venmo being the third – ultimately that would be completely reversed, ”CFO John Rainey said on the conference call after fourth quarter results from PayPal.

PayPal is not reinventing the wheel with Venmo. The core monetization strategy will continue to facilitate online payments. This means that much of Venmo’s growth will come at the expense of PayPal’s growth.

This is a sacrifice that management is prepared to make . Since users are more likely to keep a balance in their venmo info site accounts, the cost of processing payments through Venmo is significantly lower than most PayPal transactions. Venmo is also not limited by PayPal’s recent agreements with banks and credit card companies.

By focusing on online payment processing, Venmo is also moving monetization efforts away from areas where it competes more directly with Square. Square has the ambition to make Cash App a complete banking replacement, which means things like the Cash Card could become more valuable to consumers compared to the Venmo Card.

PayPal has no plans to expand its Venmo monetization efforts beyond the three products it is currently working to evolve. “We have a lot of work to do to continue to grow as we are with these new areas and we don’t want to be distracted by additional functionality,” said Rainey. This leaves the door open for Square to compete and innovate, but should help PayPal focus on what it’s good at.

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Adam levy has no position in any of the stocks mentioned. The Motley Fool owns stock and recommends PayPal Holdings and Square. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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