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November 3, 2015

Venmo Me

Payments in the Modern Age

For tech brands, the equivalent of being inducted into the Hall of Fame is becoming a verb.

“Google it.”

“I’ll Uber there.”

“Did you Instagram that?”

Most millennials would agree that Venmo, the popular mobile payment app, is the latest addition to this list. Here’s how most conversations involving Venmo begin:

Three college students go out to dinner. One picks up the check and says “Just Venmo me” as the other two fumble with their wallets.

Since most twenty-somethings don’t carry cash, peer-to-peer payment apps that allow you to send and request money with a few taps have exploded in popularity. Whether it’s covering your portion of a brunch tab or sending utility charges to a roommate, these apps provide a seamless way for friends to pay each other without ever having to touch a wallet. In five minutes you can download the app and have it fully linked to your bank account.

In this booming market, millennials are flocking to Venmo. The app struck gold by including a social element that turns transactions into status updates that can be liked and commented on. By making payments quick and fun, Venmo has redefined money transfers for a generation that trusts tech companies like Google and Apple more than banks.

More than half of milliennials think their bank is no different than any other, and one-third believe banks aren’t needed at all. Even more, 73 percent say they would be more excited about a new financial service from Google, Apple, Amazon or Square than from their own traditional bank.

“Now that Venmo transactions are going above and beyond the $20 brunch, it is only a matter of time before regulators take notice.”

Another factor driving Venmo’s success is discomfort around financial conversations. A recent study found more than 50 percent of Americans find it awkward to ask their friends to pay them back, and one-third of adults have ruined a relationship over IOUs. In most cases, Venmo’s “request” button removes the need to have these uncomfortable conversations.

However, Venmo’s rapid growth has opened the door to new problems. The convenience of quick cash transfers has scammers looking for ways to manipulate the service, and Venmo is being challenged to invest in consumer protections and customer service. Despite processing $1.6 billion in transactions during Q2 of 2015 alone, Venmo still doesn’t offer a customer service phone number to report fraud and abuse.

Now that Venmo transactions are going above and beyond the $20 brunch, it is only a matter of time before regulators take notice. Larger transaction values bring increased risk to brand reputation and security.

Venmo will soon have to face the same regulatory challenges as Wells Fargo. However, Venmo does not have to sit back and wait for those regulations to saddle the company with baggage that drags down innovation and customer growth.

The company has a community of millennials that trust the service and demand an ease of use that traditional banks simply don’t offer today. Venmo has already disrupted the business models of many financial services institutions, now the customer base it has acquired can be used to upend consumer financial regulations as we have known them for the past 100 years.

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