Venmo is a name you should learn because chances are you will soon be very familiar with it.  The company is humanizing the process of people paying other people and they are growing like crazy.  Venmo is handling hundreds of thousands of transactions every day and millions per month and has an active user base that is growing by 20 percent every month.  Needless to say what they are doing is impressive and innovative.  In fact, it’s so impressive that they caught the attention of BrainTree, who acquired Venmo back in August 2012 for $26.2 million.

The Venmo app works on iOS and Android, though I’m told by Software Engineer, Matthew Hamilton that a Windows Phone version is potentially in the works, as for BlackBerry 10, he told me not to hold my breath.  Nonetheless, when you install the app, you can securely link your bank account(s), debit card(s), and even credit card(s).  Once the accounts are linked, you can add your friends and pay them for things, which shows up in a “social feed” of sorts within the app.  Venmo also offers additional privacy settings so you can specify whether you want to make a payment Public, Friends Only, or Private.

And Venmo takes security very seriously, they do not store your bank login information, and any data that they do store is encrypted on their end using bank grade security systems.  Plus, the company holds a money transmitter license, allowing them to hold onto money in escrow for people, which allows them to provide some of the features that they offer, such as the ability to have a Venmo balance — more on that later.

But what would you use Venmo for in real life?

venmo-payout
A Venmo Transaction

That’s a common question that Venmo wants to help answer for people.  So much so, that they hired some data scientists to make sense of all the transaction data that they are processing every day in an effort to teach people how to use Venmo.  Mr. Hamilton told me that that they found once people installed the app and linked their accounts, users experience an “Ok, now what?” moment.  And they are hoping that they can use the transaction data they have gathered over the years to help provide useful recommendations to people on how to use the app.

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For example, Mr. Hamilton’s roommate is a professional musician who tours a lot, and as every good roommate will do, Mr. Hamilton will Venmo him some money for a beer while he’s away on tour.  How nice is that!  Now, even if you are not as generous as Mr. Hamilton, there are still several other ways you could use Venmo.  For example, you could use Venmo to pay your room mate for your portion of the rent or use it pay a friend back for concert tickets they purchased for you. The possibilities are really endless.

Perhaps the best part of Venmo is that there are no transactions fees, except if you pay with a credit card — then there’s a 3 percent fee.  However, if you use Venmo and pay directly out of your bank account or via a (major banks) debit card, it’s free of charge to you.

How does Venmo offer free transactions?

Well, Venmo is actually losing money on every transaction.  Right now, bank account transactions on Venmo use ACH to transfer the money, which costs Venmo 5 to 25 cents to process and debit cards (from major bank’s) transactions also have similar fees.  However, if you have a Venmo balance (money held in your Venmo account), then it costs Venmo nothing to handle the transaction, which is great, especially because Mr. Hamilton estimates that at least a quarter of payments are coming from Venmo balances.

Venmo also recently revamped their payment limits system, and increased the amount people can pay out.  Currently, the company is allowing people to pay out up to $3,000 per calendar week regardless of funding source.  I was told by Mr. Hamilton that the limits are put in place by Venmo as a security measure to help prevent fraud and money laundering. The Venmo team takes fraud very seriously, in fact, they have a full-time fraud team who comb through the transactions looking for any suspicious activity.  In addition to a human fraud detector, they also have developed algorithms to look for suspicious activity such as people who only connect a credit card and make one large payment or several small payments of the same size and then try and cash out quickly.

venmo-feed
Venmo’s “social” trasnaction feed

But Venmo is also looking at other ways to generate revenue, such as its new Venmo Payouts API which it will be charging businesses 25 cents per transaction to use.  The new Payouts API has already generated a lot of interest by service businesses who need to pay independent contractors.  For example, GetMaid has signed on as a beta partner to take the hassle out of paying their maids — because who wants to mail checks anymore?

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While Venmo is not actively looking to get into brick and motar businesses right now, Mr. Hamilton told me to expect more businesses using Venmo within the next year.

Make no mistake, the BrainTree acquisition of Venmo is going to provide some great synergies between the two.  BrainTree already processes payments for some large companies including Fab.com, LivingSocial, AngryBirds, and AirBnB, with Venmo they will be able to lower the costs of moving money.  By utilizing Venmo to transfer money via a Venmo balance or via a bank account, BrainTree will be able to offer lower transaction fees for its clients therefore making it an even more appealing service compared to its competitors.

Venmo is just looking to make paying people easier

Paying people is boring and can often be difficult and full of frustrations.  One of the other areas Venmo is innovating in is making it easy to pay for things within mobile (and hopefully soon the web, I’m told).  The company recently introduced Venmo Touch, which lets people check out and pay for something in an app with just one touch (provided they have a Venmo account), so forget having to enter a debit or card card.  Apps such as TaskRabbit and HotelTonight have already implemented Venmo Touch in their apps and the number of companies interested in it is growing.  So if you are an app developer and are interested in implementing Venmo Touch, please do and save us consumers a lot of trouble.

What it really all comes down to is that the company is looking to excel in three key areas: providing what is considered to be the best peer to peer payment experience (while focusing on privacy), becoming the easiest way for businesses to make payouts, and expanding the use of Venmo Touch.

I’d say they are well on their way.


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