Practice English Speaking&Listening with: How Venmo Makes Money

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Cold hard cash.

It used to be king.

But in a world where you can pay someone by

swiping a few times and clicking a button,

consumers are opting to transfer money online

instead.

They are the two words all millennials seem to be

using these days.

Venmo me!

One popular option is Venmo.

If you haven't used it yet there's a good chance

you will soon.

The peer to peer payment app, owned by PayPal has

become a household name.

I don't have Venmo.

Katie get Venmo it's free.

The finance app also operates like a social

network and lets you comment on payments seeing

who and what your friends are spending on.

It all happens pretty seamlessly from your phone.

But on the back end it's not as simple as using

cash. Some have concerns over data and the fact

that it's not a bank and Wall Street is waiting

to see if it can really become a moneymaker for

its parent company.

It's a real concern.

Venmo isn't profitable.

It is a very strong social network.

Personally freaks me out that people know who

they paid and who paid me.

But I guess millennials like that.

Let's take it back to where this all started.

Venmo was founded a decade ago by two former

University of Pennsylvania students.

He was visiting me in New York and didn't have his

wallet so I covered him for the whole weekend and

he wrote me a check to pay me back and we thought

this is silly we should be using our phones to do

this.

It was later bought by Braintree for 26 million

dollars.

Not billion million.

Braintree was later bought by PayPal.

Bill Ready CEO of Braintree at the time and now

chief operating officer at PayPal is the man

responsible for bringing the no name app to

mainstream fame.

The name Venmo comes from the Latin vendere and

mobile and sort of bringing those two things

together.

We really wanted to be the way people would pay

for everything.

Braintree is platform helped PayPal Dive into

Mobile which is now about 40 percent of its

business. Bill had us to PayPal's New York City

offices where Venmo is headquartered.

It's come a long way from where it had been at one

time the early vinyl office literally there were

10 people in the office unfinished floors and it

was so crowded that for me to do conference calls

I'd go up on the rooftop which was unfinished --

like tar roof.

Ready has founded five startups and has a

background in software engineering.

He bet on mobile payments before banks were in

the palms of our hands.

Now you look back at it we did 19 billion dollars

in volume last quarter alone drawing 80 percent

plus year on year still so 26 million

dollars now looks like a steal.

Back then people thought was crazy to pay that.

The app has since evolved into a crown jewel and

PayPal's digital payments empire.

For all of 2018, the app processed 62 billion

dollars in paymentsa 79 percent increase from

a year earlier and the company says it's on track

to reach 100 billion dollars by the end of 2019.

Getting users on the platform has been a snowball

effect. One estimate from eMarketer says Venmo

has attracted twenty seven point four million

people.

Each user begets other new users and becomes more

engaged over time.

Profitability. What will that take?

Venmo's most now one of the largest mobile apps in

the world by dollar volume I think in the U.S.

you'd put his top two or top three.

And so you know we're really focused on you know

the growth in the market share that we're

capturing and making sure we have modernization

and line of sight to profitability but not

necessarily trying to get to profits today.

We want to make sure we go capture that market.

Bottom line Venmo's still not breaking even and it

won't be for a while.

So part of its appeal is that it's free which has

attracted a ton millennials.

But how do they plan to make money eventually.

The company does charge for certain events.

If you want to use a credit card instead of a

debit card on Venmo it's a 3 percent fee.

And if you want money in your account faster than

the typical one to two day wait you could pay for

that too.

The company also partners with Uber, Chipotle,

GrubHub and others and makes money off of those

partnerships.

The primary way that we make money on Venmo is

really by merchants paying us for the acceptance

of them which is the same way that PayPal makes

money, you know merchants that choose to accept

Venmo you know they pay us a small fee to accept

payment from a Venmo user.

Venmo is not a bank though.

Paypal has money transmitter licenses.

The money in your account is actually held at a

partner bank.

It's a common setup for fintech companies that

don't have a bank charter.

The tech company handles the front end and it may

appear as though the money is sitting in an

account on your phone.

But it's really not the partner bank is the one

holding that money.

It all means that money you keep on

Venmo's platform is not insured by the federal

governmentlike it would be in a standard

checking or savings account.

I mean no aspirations at all to become a bank.

It's not the business that we're in.

We're partnering with major financial

institutions that hold that money for us.

Wells Fargo is a major partner for us on that but

we work with a number of them.

They're not paying you interest when you keep your

money there.

They're also not lending it out like a bank can

but they're making a little bit of money.

Would you guys ever invest that money?

Separate from Venmo if you look across PayPal we

will hold balances in some very safe investment

grade securities - think government treasuries or

things like that.

And so do you earn interest on that I assume?

A small amount.

Yes.

Got it.

But that small amount can really add up for a

company holding a boatload of cash, offering a

big moneymaking opportunity for Venmo.

So how does Venmo actually work?

You link your bank account type in someone's

number the dollar amount and send it but it's not

all that easy.

Think of it as a duck going across water.

It looks very smooth to the consumer but below is

their feet moving very quickly.

You send money to me Kate.

It shows up on my Venmo account real time but the

money is really not my bank account.

Could I go spend it.

No. Can I go to the A.T.M.

and use it.

No. So how Venmo works if I wanted to get it and

move it into my bank account.

Then I have to go into the traditional bank

system we call ACA or the Automated Clearinghouse

and that's when all the friction happens.

Just like our roads and bridges are broken our

payment infrastructure is old and broken.

All the transactions are batched up sent to the

Federal Reserve and it's sent overnight to your

bank.

And so it's very inefficient and it really shows

up the next day between the banks.

Venmo is hardly the only game in town for digital

payments. Square's popular peer to peer cash app

has similar features and according to one report

is growing even faster than Venmo.

The Square Cash app downloads have actually

exceeded venomous every month that passes by the

gap between the two keeps widening.

So literally Square Cash adds about 2 million

users every month which is amazing.

If you go on Google Trends and type Square Cash

what you'll see which I thought was striking is

along the southeast that's where most people have

search for Square Cash.

You don't see that as much in the Northeast and

sort of the Pacific West.

And the interesting thing there is it turns out

that is a socioeconomic thing to this Square Cash

app. It's become sort of the go to app for the

under banked whereas Venmo is still being used a

lot but is a different socioeconomic group of

people I'd say like a cliché is like Millennials.

Got it.

It's sort of the coastal millennials are using

Venmo?

Pampered millennials versus hard working under

banked. So I mean so I'm exaggerating but that's

sort of like the way it turned out.

But Bill Ready insists Venmo is also going after

the under banked this aspect of finding ways to

get the underserved while that's on the consumer

side. Merchant side into the digital economy

extremely important not just for us but I think

to the health of the economy.

Banks are also getting into that P2P payment game.

The big banks JP Morgan, Bank of America, Citi,

Wells Fargo and others launched Zelle in 2017 and

Zelle is a little bit different than Venmo.

There's no middleman so it's directly integrated

with the banks.

There is more security around it because there's

more compliance because the regulators look at

that and look at those transactions and ensure

that you're doing it a proper way.

According to a Wall Street Journal report Venmo

was hit by a wave of payment frauds in 2013 that

helped push losses higher than the company

previously expected.

They recorded an operating loss of about 40

million dollars nearly 40 percent higher than the

loss for which the company had budgeted.

In a statement to CNBC PayPal said Venmo loss

levels are lower than the overall average for

PayPal and compare favorably to the industry when

introducing new features it is not unusual to see

short periods of elevated losses Reddy said

preventing fraud is one reason they collect data

which has gotten other tech companies like

Facebook into hot water.

To be very clear we're not in the business of

selling people's data.

We don't engage in that.

We leverage things about the device and those

types of things for fraud protection purposes.

In terms of the user's information being shared

the user is in full control of what they share.

Financial technology or fintech has a higher bar

for regulation Venmo has run into issues with the

FTC but it settled.

The industry watchdog accused Venmo of misleading

customers when it came to privacy disclosures and

some information being automatically displayed on

Venmo social news feed.

The FTC also alleged that Venmo misrepresented the

extent to which consumers financial accounts were

protected by quote bank grade security systems.

We have been a pioneer in the space when you're

doing things that have never been done before

you're trying to make sure you do the best that

you can to to work with regulation that exists

but sometimes that regulation may not speak to

new things that have not been done before and the

FTC settlement much of it was addressing things

that we had already addressed.

But we have absolutely made sure to implement all

the recommendations.

We always work very closely with regulators.

We really take an approach that we have a common

interest with regulators.

Venmo has had to comply with international

sanctions and law enforcement which can be tricky

when people are communicating with emojis.

So how do you distinguish what's a joke and

what's really a threat.

So we actually from regulators get a list of

keywords and if people use those keywords or

names that might be on a terrorist watch list any

of those kinds of things we are obligated to go

intervene and report those.

Now what we're able to do in those is give the

user a way to go explain what it was like OK you

weren't buying goods from Cuba you're buying a

Cuban sandwich.

Are there certain emojis that would trigger a

warning from Venmo.

We don't have a list of embargoed emojis just yet

but maybe that's coming in the future.

So Venmo has revolutionized the way we think about

cash. But Wall Street is still watching to see

whether or not it can really become profitable

for its parent company PayPal.

Like any fintech company there are plenty of

challenges. The bar for regulation is very high.

There are data and privacy concerns.

And of course they've got tons and tons of competition.

The Description of How Venmo Makes Money