Venmo Me: A Quick Guide to P2P

P2P payments have come barreling out of nowhere, developing from a niche millennial app into a digital behemoth with an estimated 129 million users in the US alone by the year 2020. Major FIs and payment influencers like Apple, PayPal and more have stepped into the game. Consumers face a complex mix of options, including:

  1. Standalone Payments (Venmo, Square Pay)
  2. Social Media Payments (Facebook, Snapchat, Instagram)
  3. Retail-Integrated Payments (Apple Pay Cash)
  4. Bank Supported Payments (Zelle)

With the growing reach and influence of P2P payments, it’s important understand the layout of this market. Let’s take a quick look.

Venmo: The Standalone Leader

Far and away the leader in the P2P market, Venmo has achieved the Google-like distinction of becoming its own verb, as in: “I’ll venmo you for half the pizza.” Venmo is incredibly popular, handling $8 billion in transaction volume in the 2nd quarter of 2017, and its growth shows no signs of slowing. Venmo is a sleek product that appeared in the right place at the right time, offering features that its target market, urban millennials, love. On its Facebook-like social media feed, users can see and comment on their peers’ activities, complete with all the pizza and beer emojis you could ask for.

Despite its transaction volume, Venmo is not particularly profitable. There’s no charge for users to send and receive money by debit or bank account. Venmo covers its expenses by charging a 3% processing fee for credit card-funded transactions. However, this lack of profit doesn’t really matter. Since 2013, Venmo has been owned by PayPal, and it is useful in expanding PayPal’s influence in the payments world.

PayPal, parent company of Venmo, has 197 million active, registered accounts. PayPal provides an invaluable service for online payments, for large and small merchants alike. PayPal also offers P2P payments through its platform, but there are strings attached. Transfers are free when using a linked bank account or PayPal account balance, but the company charges 3.4% plus $0.30 per transaction when funded by a debit or credit card. This is much higher than industry averages. As a result, consumers are much more likely to seek out Venmo or a similar competitor for P2P payments.

One way PayPal can monetize Venmo is by expanding more aggressively into merchant payments. Right now, Venmo appears to be in the early stages of this endeavor. PayPal President Daniel Schulman recently commented, “We’ve got a very engaged Venmo base and they have been asking to expand that to move into a shop.” In a few target markets, Venmo is beta testing in-app payments for good and services, via a Pay With Venmo button. And while there’s talk on the street about rolling out physical Venmo debit cards, the company is keeping its plans largely under wraps for now.

Social Media: A Dime a Dozen

Essentially, P2P is the backbone of social media: friends, followers, comments, likes, and the list goes on. It has made perfect sense to integrate P2P payments into social media platforms. P2P payments are not a profit center, but rather a crucial added value service. By offering an easy way to pay a friend for a casual transaction, social media platforms keep consumers within their apps for more activities of daily life.

Unlike stand-alone platforms, social media P2P services do not provide stored value accounts for consumers. Instead, they are generally straightforward debit-to-debit transactions. For instance, the two most dominant platforms, Facebook and Snapchat, offer free debit transfers - through Facebook’s Messenger app, or as Snapcash via the Snapchat app.

Instagram and Pinterest have also found ways to monetize the P2P angle. Instagram offers Shop Now options to buy products within its app, and Pinterest provides Buy Now pins. Twitter, on the other hand, found “buy now” options to be outside its core competency, and is discontinuing in-app purchase capabilities.

Apple Pay Cash: A Step Beyond

Never one to be left in the dust, Apple is rolling out its own P2P payments, Apple Pay Cash. iPhone users will be able to send one another money quickly and easily within an iMessage text. This money will be stored as account value in Apple Pay Cash. But Apple is taking it beyond the P2P realm.

While platforms such as Venmo are only dipping their toes into the concept of merchant payments, Apple is diving right in, leveraging Apple Pay’s dominance in the mobile wallet market. Here’s where it gets interesting. Consumers will be able to use their Apple Pay Cash to fund purchases anywhere Apple Pay is supported, online or with NFC-capable retailers. This should present a surprisingly seamless blend of the P2P and retail worlds. While smaller competitors such as Square Cash have rolled out similar debit-based programs, they don’t have Apple Pay’s 4 million retail locations to back it up. As far as market integration goes, Apple is the one to watch.

Zelle: A League of Its Own

US banks are late to the P2P party. In the past, many FIs have offered digital P2P payments through clunky platforms such as Popmoney, which never caught on with consumers. Banks are making up for lost time now.  Zelle (formerly clearXchange) is a bank-supported P2P payments service being rolled out as a direct competitor to Venmo, PayPal, and the others. In addition to minimizing the steps required for users to send and receive money, Zelle offers the major advantage of speed. Funds are transferred to participating banks within minutes instead of days, as with many other P2P services.

But Zelle’s greatest advantage is its size. With over 30 participating FIs, and access to more than 86 million mobile banking consumers, Zelle is well positioned to dominate the P2P payments market. Even last year in 2016, before Zelle’s big rebranding and marketing push, participating FIs processed many millions of P2P payments.

P2P payment services are quickly becoming more sophisticated. The influence of Apple’s integration into retail and Zelle’s massive bank-based portfolio will allow this market to develop as never before. In the payments arena, you never know what surprise is just around the corner.

in Industry News, Technology

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