The digital transfer of cash is evolving quickly, and companies are rushing to keep up. Venmo’s blog notes that users of PayPal’s Venmo app will be able to access their money instantly at a fee. However, traditional Venmo transfers are fee-free.
PayPal’s Venmo app users can link their bank accounts to access the instant cash transfer service. Users would pay up to $10 in transfer fees, although the transfer fee can dip as low as $0.25. Venmo is counting on users needing their cash faster than traditional bank transfers can provide. In our view, this could be a crucial avenue for Venmo to improve its profits.
For PayPal (PYPL), this new capability could improve its profits and counter its industry competition. In its latest quarter, competitors Zelle Network posted $44 billion in transfer volumes from 171 million transactions over three months. Close to 500 financial institutions use Zelle to transfer cash. So, Venmo’s launch of its instant payment service is a way to approach these transaction volumes. In the same three-month period that covered Zelle’s $44 billion transfer volume, Venmo registered $24 billion in transfers.
Secondly, there is a need for PayPal’s Venmo App to capture a larger share of the peer-to-peer payment niche. There is only one way for Venmo to grow its share of the P2P market—to grow its payments volume. So far, its rate of growth is comfortable, as Venmo has reported higher payments volume every quarter for the last three years.
PayPal’s Venmo app move is strategic
The global banking sector is experiencing a fundamental shift in terms of business models due to the growing usage of smartphones to perform banking-related activities. In 2018, 22 million people used their smartphones to manage their banking activities. By 2023, over 35 million people could be using mobile and digital banking solutions.
So far, PayPal’s Venmo app is just attacking just one aspect of the future of finance. In addition to PayPal banking on Venmo to boost its revenues, PayPal unveiled Xoom in July to take on the global remittances sector.
PayPal’s Xoom is now facing off against veterans like Western Union, Money Gram, and World Remit. However, it might take some time for Xoom to hit the usage rate of WU and MGI. Xoom is currently focusing its efforts on migrant workers in Europe.