PayPal (PYPL) has sued a little-known loans startup for trademark infringement. The startup in question is Lenmo, which describes itself as a peer-to-peer lending platform. PayPal claims in its lawsuit that the Lenmo brand is an obvious imitation of its popular Venmo brand. In other words, PayPal is accusing Lenmo of trying to unlawfully ride on the popularity and trust Venmo has with its users. PayPal has raised concerns that people may wrongfully think Lenmo and Venmo are related. In fact, they’re rivals.
PayPal, Venmo’s parent, is also into the lending business. PayPal makes small loans to merchants and consumers. Therefore, if you consider Venmo in the context of the PayPal organization, it has competing interests with Lenmo. Without a doubt, PayPal wouldn’t be glad to have a competitor taking advantage of its brand strength.
Popularizing a brand and getting people to trust it takes time and great investment in brand marketing. PayPal spent $356 million on marketing-related expenses in the second quarter, up from $307 million a year ago. PayPal’s marketing costs in the second quarter took up close to 10% of the company’s total revenue in the quarter.
In PayPal’s view, it feels like it’s been doing free marketing for Lenmo when it has nothing to do with the business. PayPal wants the court to compel Lenmo to drop the brand, and it wants Lenmo to pay it damages.
PayPal isn’t new to trademark disputes
Trademark disputes are common. Last year, Alibaba (BABA) sued a Dubai-based cryptocurrency for trademark infringement. The company, called ABBC Foundation, had a cryptocurrency product called Alibabacoin. Alibaba took issue with the name and accused ABBC of unlawfully trying to ride on its brand popularity. Alibaba also raised the concern that consumers may wrongfully think it has something in common with ABBC. Besides not having any association with ABBC, Alibaba isn’t into the cryptocurrency business. China greatly restricts the involvement of its companies in cryptocurrency. Alibaba eventually reached a settlement with ABBC that saw it take over the Alibabacoin trademark.
Facebook’s Libra logo also has drawn criticism. The logo Facebook adopted for its Libra cryptocurrency bears a striking resemblance to that of online bank startup Current.
PayPal isn’t new to trademark disputes, and its Lenmo lawsuit may show it becoming more aggressive in defending its copyrights. In 2017, PayPal sued online music service Pandora, accusing it of trademark infringement. PayPal filed the lawsuit after Pandora rebranded and adopted a logo that was similar to PayPal’s. Pandora is now part of SiriusXM, which bought it for $3.5 billion in a transaction early this year. Pandora was a standalone public company at the time PayPal sued it for trademark infringement.
Venmo tops 40 million active users
Venmo is a popular mobile payment app. PayPal has designed Venmo to be attractive for young people, and they’ve responded positively to the pitch. Venmo had over 40 million active users at the end of the first quarter. People use Venmo to send or receive money between family and friends at no fee. Venmo also allows people to pay for purchases at participating merchants and vendors using the balances in their digital wallets. Venmo has also added a social touch via an Instagram-like feature. People use this feature to share stories about how they’re using the app.
One prominent business that accepts Venmo payments is ride-hailing giant Uber Technologies.
Other big brands that have adopted Venmo are Hulu, GrubHub (GRUB), and Shopify (SHOP). Hulu, a joint venture of the Walt Disney Company and Comcast, is one of the top subscription video services in the US. Hulu boasts close to 30 million paying subscribers, making it an important commercial partner for Venmo. GrubHub is one of the leading restaurant delivery services in the US, which makes it a key Venmo partner. Shopify is a fast-growing e-commerce company. It’s one of the e-commerce providers giving Amazon (AMZN) tough competition. Amazon competes with PayPal in the payments marketplace. Partners such as Shopify provide PayPal with alternative paths for expansion in the e-commerce space.
PayPal last disclosed that over 2.0 million merchants had adopted Venmo as a checkout option. Venmo processed transactions worth $70 billion in the second quarter, representing an increase of 70% year-over-year. PayPal describes Venmo as a crown jewel, showing its huge expectation for the business.
PayPal has only just begun monetizing Venmo. The company currently makes money from Venmo through fees it charges for instant bank transfers and processing payments for merchants. Venmo’s monetizable base has been expanding steadily. In the third quarter of 2018, Venmo’s monetizable user base stood at 24%, and it rose to 29% in the fourth quarter of 2019. PayPal recently provided a hint that Venmo’s monetizable base is around 38%. The company said that of Venmo’s over 40 million users, 15% use the service in ways that can generate revenue.
Right now, PayPal doesn’t disclose its Venmo revenue, but it’s provided hints about how big the business has become. PayPal said that Venmo’s second-quarter revenue worked out to $300 million annually. The company previously estimated Venmo’s revenue to be $200 million on an annual basis.