You’ve all heard of it. You all have probably used it within the past week. Venmo. Venmo is a free app used to send money in the US and is considered very safe for storing both money and personal bank information. It was founded in 2008 by UPenn grads Andrew Kortina and Igram Magdon-Ismail when Magdon-Ismail forgot his wallet on a trip. Kortina spotted him the money for the weekend but this gave them the idea to create a platform to send and receive payments over text. Adding a social networking aspect was a deliberate decision based on the “stories” told over the original Venmo text messages. Its payment transactions in the last quarter of 2018 alone were $19 billion, all of them being accompanied by a message of text or emoji’s (most of which are publicly visible). They make money through transaction fees on instantaneous bank transfers and through charging businesses to use the app as a form of payment from customers. While this provides revenues for the company, it’s not enough to make a profit, or break even which is something they are struggling with especially in the wake of growing competition. Their competitors consist of Square Cash, Apple Pay Cash, Zelle and other mobile banking apps launched by banks themselves. However, none have reached the success or transaction volume of Venmo and none include the visibility of payment that comes with the social networking aspect of the app.
Just by scrolling through my own Venmo feed as I was writing this, I could see rent transactions with roommates, who had ubered to and from bars together over the weekend, and even found out that a girl from high school had to pay another because apparently she had stolen some of her food when she was drunk (or so the caption says). The point is, you can get as much information scrolling through your Venmo newsfeed as you can on Instagram or Facebook, only this time it also loops in spending habits. In fact, privacy advocates have done research to find out just how much information is hiding in plain sight on our Venmo accounts. Hang Do Thi Duc used more than 200 million public Venmo payments in her analysis to illustrate the lack of privacy. She was able to “trace the exact spending habits of a couple in California, documenting what stores they shopped at, when they took their dog to the vet, and when they made loan payments”. (Check out this link if you want to learn more about her findings). There have also been similar projects set up to track payments referencing drugs and “supposedly scandalous payments” which are actually pretty easy to trace.
The FTC says changing Venmo settings to protect privacy is “too onerous” and that Venmo hasn’t made it clear enough to users all of the settings that they need to change to make sure their payments are actually private. To combat this, Venmo created a new privacy tutorial that pops up when you create an account, however this doesn’t help their millions of already existing users. In today’s world privacy is becoming a bigger concern every day and it seems to me like this could be a threat to Venmo’s current role as a leader in the mobile money transfer space.
So why do we keep using Venmo despite the existence of competitors who provide exactly the same service without the social networking aspect? I think it has to do with the First Mover advantage and network effects. Venmo was the first money-sending app to really get publicity and its name out there. Now pretty much everyone I interact with has a Venmo account (even my mom!). It’s even a verb – “I’m going to venmo you”. If I were to set up Apple Pay or use my own bank’s personal transaction app, the people who I need to send money to most likely wouldn’t have an account of their own making my peer-to-peer transaction impossible. Simply put, I use Venmo because the people I need to send money to or get money from use it.
Could this change in the future?
Well that depends on us, I guess. There is not a lack of alternatives out there. Square Cash and Zelle are growing quickly and even getting backed by major banks. Gmail and Faceboom Messenger offer ways to send money between users and Apple is releasing the same thing with iOS 11. This could go one of two ways: either Venmo could change their platform to make switching to non-public transactions the norm (or at least much easier); or as people start to realize how much personal information the are really sharing on Venmo, they will start to switch to other more private apps. In the later case, as more people prioritize privacy, the network effects will begin to work in the favor of the competition as more users switch. Either way, Venmo’s profitability problems will only get worse if they lose users, so keeping current users and gaining new ones is imperative if they plan to be around for a while.
What do you think?
I’d love to hear your inputs on this topic. Our potential adoption of other peer-to-peer money transferring apps has the potential to make or break Venmo. How much do we as millennial users value our financial privacy? Is Venmo privacy something you’ve ever been concerned about? And if you are, are you willing to (or have you already) make the switch to something that doesn’t combine your financial decisions with social media sharing? Venmo was created specifically to have a social media aspect to it – do you think that this will change in the future, or is a fundamental part of the company and its success so far?
Works Consulted & Referenced