Profile of PayPal subsidiary Venmo, which has grown to an estimated 7M MAUs and processed $18B in payments in 2016 after struggling early with compliance, fraud
Under parent company PayPal, the millennial-focused payments app is finally ready to make some money. — [Illustrations: Danilo Agutoli]
Context & Ripple Effects
Venmo spent its early years as a liability: the profile notes compliance and fraud problems that made the peer-to-peer app a cost center inside PayPal rather than a business. The turnaround began when PayPal opened the app to commerce, first with the Pay with Venmo launch for PayPal merchants, then with over two million US retailers accepting Venmo at checkout starting in October 2017.
By the time of this profile, that groundwork had turned Venmo into one of PayPal's fastest-growing assets — an estimated 7M monthly users and $18B processed in 2016 — and set up the scale the coverage later confirms: $62B in payments during 2018 with annual revenue above $200M, even as Bloomberg reporting cited losses of hundreds of millions a year.
First-order effects
- PayPal gains a monetizable consumer funnel: millions of Venmo users who split bills for free become buyers at the two-million-plus US merchants now accepting the app, converting a loss-making P2P service into a transaction-fee business.
Second-order effects
- Merchant acceptance forces Venmo's unit economics to carry the load — with hundreds of millions in annual losses still on the books, PayPal leans on card-network partnerships with former foes like Visa to keep volume growing while closing the gap.
Third-order effects
- If the pattern holds, P2P apps stop being standalone products and become customer-acquisition layers inside parent fintech platforms — Venmo's userbase reaching 52M by 2020 within PayPal's 277M-account ecosystem shows the social wallet absorbed into the broader payments network.
The trend: Peer-to-peer payment apps are being converted from free social utilities into merchant-commerce channels owned by large fintech platforms, with monetization lagging user growth by years.