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Summary

The PayPal-owned digital wallet provider Venmo is expanding beyond person-to-person (P2P) mobile money transfers to support in-application payments. To be a successful in-app payment platform Venmo will need to win widespread support from merchants and other third parties. It will also have to hold its own against players such as Apple Pay and Android Pay, which will not be easy even with the assistance that PayPal can provide.

Venmo has strong cards to play in the in-app payment game

Venmo’s new service, Pay With Venmo, is aimed at third-party applications and will enable users to make in-app payments with their Venmo account rather than using a credit or debit card. It will initially be available only for iOS apps, but support for Android will follow. The service is launching with test users and only two merchant partners: food-delivery app Munchery and sports-tickets app Gametime. However, it will be made available to all PayPal merchants later in 2016, which will create a huge addressable base.

Ovum expects Pay With Venmo to leverage Braintree, a payments processor and fellow PayPal subsidiary that has partnerships with popular apps such as Uber and Airbnb. Relationships of this kind could give Pay With Venmo a head start when it comes to integration with third-party apps.

Venmo’s core focus to date has been P2P mobile money transfers. It has built a strong following in the US market, particularly among millennials, for whom it has become the “go to” social P2P transfer app. Venmo is used frequently by users and experienced transaction volume growth of 174% year-on-year in 4Q15. Its positioning as a social commerce application is potentially complementary to in-application payments for merchant services. It is not hard to envisage a scenario in which a Venmo user buys a pizza with Pay With Venmo and then splits the bill with their friends using the established Venmo P2P transfer function. This is a great example of contextual commerce, which Ovum has identified as a key trend for consumer mobile payments in 2016 and beyond. (For details of this and other key trends, please see the Ovum report 2016 Trends to Watch: Consumer Mobile Payments Services.)

Venmo does not charge end-user fees for P2P transactions. Its development from a P2P mobile money transfer app to an in-app payments platform will open new revenue opportunities. PayPal has yet to reveal the business model for Pay With Venmo, but PayPal CEO Dan Shulman has previously indicated that merchants would be charged the same rate to use Venmo as to use PayPal. To generate significant revenues, Pay With Venmo needs a groundswell of merchants behind it. The provider would also benefit from expanding beyond the US market, currently the only one where its service is available.

Venmo’s support for in-app payments will see it compete against a growing number of payments platforms. This will be tough even with PayPal behind it, given that it will be challenging heavyweights such as Apple Pay, Android Pay, and Samsung Pay. Venmo will also be competing with a growing number of highly successful messaging apps such as Tencent-owned WeChat that are adding P2P transfers and wider payments functionality, including merchant payments.

Appendix

Further reading

2016 Trends to Watch: Consumer Mobile Payments Services, TE0003-000900 (January 2016)

Author

Eden Zoller, Principal Analyst, Consumer Services and Payments

eden.zoller@ovum.com

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