The Wall Street Journal indicates that Venmo is looking to branch out from its core business of being a P2P money transmitter. It will be interesting to watch and hope that it does not begin to compete with their parent, PayPal. According to the WSJ, Synchrony will be the card service provider for the credit card account.
The Venmo brand is a well-designed product, though it has never been a money maker for PayPal.
The WSJ says:
- Despite its popularity, Venmo has been bleeding money for years. Most Venmo payments consist of money transfers between two people, transactions for which the company absorbs processing costs that it doesn’t typically pass on to customers.
- This year the money-transfer business is expected to report an estimated operating loss of $394 million, according to analysts at Nomura Holdings
As a consumer, I never understood why PayPal ever needed Venmo, aside from the Braintree business. My PayPal account is about 20 years old, and it is my go-to source when I do not purchase through Amazon or a major online retailer. I like the fact that it is PayPal accessing my account, not the merchant. PayPal is trustworthy.
And, though I don’t know the full amount, I know I’ve sent my kid’s thousands of dollars through PayPal as they progressed through high school, college, and the workforce. After years of resistance, they convinced me to shift my daddy-bank payments to Venmo, though it all seems the same to me.
The Synchrony card will probably be a good offering, but will it be a moneymaker for Venmo? Will it cannibalize the PayPal card? Our view is that the U.S. credit card market is saturated and as Mercator Advisory Group noted in the WSJ article, the U.S. market is unlikely to grow much larger than it is today.
- Venmo is entering a crowded market as more technology companies develop credit cards to incentivize spending.
- Apple is working with Goldman Sachs Group Inc. to roll out a new line of credit cards later this year that would sync with users’ iPhones. American Express Co. recently began issuing Amazon.com Inc. credit cards for small businesses.
Venmo certainly does have a new issuing partner that can keep pace with its scale, but we have to wonder if there is enough space for the card with Apple entering the fray and Mercator’s expectation that Goldman Sachs will likely issue its card in addition to the Apple card. The big question here is will Venmo be able to get beyond the almost $100 billion they moved in payments last year and will credit cards be the resolve?
My back-of-the-envelope math suggests that Venmo will need to book nearly 2 million accounts to offset the $347 million loss, and that won’t be easy in the flat U.S. market, now facing off with Apple and Goldman Sachs.
Perhaps the core issue here is that P2P is a financial service; it is certainly worth a convenience (or risk) fee.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group