If you’re above 50, there’s a very good chance you haven’t heard of Venmo. Or, if you’re a ‘hip’ (sorry) 50 year old, maybe you have heard of it, through your kids.
The fact of the matter is a few years ago Venmo caught the attention of Millennials. We know how Millennials are driving smartphone usage among apps and mCommerce. So it shouldn’t come as a surprise that banking or P2P mobile payments are in the mix.
The problem has been for the conventional banks. They have been struggling to compete…
But, before we get into how banks are working to woo this massive block of customers, a little bit on the basics of Venmo.
Venmo is a Peer to Peer (P2P) money transfer app. In non FinTech terms, it means you can request money from and send money to your friends all via an app.
For people that don’t typically carry a lot of cash, this comes in handy.
Say you’re out to dinner with a group of friends, and one person grabs the bill. If you don’t have exact change, no problem. All you need to do is use Venmo (assuming both parties have an account) to send your friend the exact amount you owe.
It’s easy to see all the possibilities of this. For users (and that’s not just Millennials) an app like Venmo makes splitting the bill easy. You can use it for anything: food, the bar tab, Uber or Lyft sharing, sports or concert tickets, cable bills, vacations, and even rent.
You name it.
Anyone who has had to follow up with a friend asking for money knows it can be awkward (to say the least). Venmo tries to address that with the app.
One way is it’s formatted much like Facebook Messenger. This allows for a stream of conversation or just sending emojis to note the transaction (or have fun). It’s really the emjoi’s that users love.
Unsurprisingly, the most common emoji used with Venmo is a pizza slice. Yes, there’s been a study on that.
LendEDU conducted one analyzing the Venmo (and emoji) use of over 500,000 accounts. The findings are fun, but also give a really good insight into what people are spending their money on and when.
Venmo is operated by PayPal, a site most people are familiar with now. And on iOS, users can send fund via their phone’s keyboard or by using Siri.
Why Venmo is a Big Deal
Ok, the kids love Venmo, so what? How big could it possibly be?
Pretty big actually.
In 2016, Venmo processed just under $18 billion in mobile payments. That number was up 135% from 2015. And, that $17.6 billion in payments $6.8 billion of that was just from the fourth quarter alone.
Here’s more data from Money-ish:
“Venmo has become the most popular money payment app among Millennials; of the 65% of 20 and 30-somethings who use payment apps, more than two-thirds (68%) of them use Venmo, compared to the 22% using their own bank’s mobile app…”
The number that scares banks is the 22%.
It’s clear that P2P apps have the potential to be huge. Look at Venmo’s growth already, and it hasn’t even come close to reaching a deep market penetration.
In this 2015 study from Accenture, they found only 15% of their survey respondents used a peer to peer payment app daily or weekly. Almost the same amount, 14%, had no idea such a thing existed! And 40% had never used one at all.
A more recent study from the Aite Group, released in March 2017 found projections are even rosier for the potential:
“In the U.S. today the majority of P2P payments are made using cash and checks, with just 10% of the total P2P transaction volume being made using a digital P2P payments method,” says analyst Talie Baker. “In what Aite Group estimates is a US$1.2 trillion market, there is tremendous room for growth in digital P2P payments as consumers become more familiar with mobile payments and as digital P2P payments solutions become more ubiquitous,” she says.
The problem banks face is, well, Millennials don’t seem to like them very much. So, the banks have to change that.
Here’s how they’re doing it.
Banks Fight Back
Many banks already have their own P2P apps at the ready. JP Morgan Chase has used QuickPay, for example. And it’s not doing peanuts on its own, QuickPay transferred $28 billion in 2016, a 38% growth over 2015.
What is notable, however, are a couple of things.
First, these bank side apps can be clunky to use, especially if the person on the other end doesn’t use the same bank. Second, the nonbank app like Venmo are used twice as often as the bank apps, and the average payment size is much smaller.
So while it’s clear there is a market for bank P2P apps, they appear to be used more for larger transactions on a less frequent basis. With Venmo, users have included the app as part of their normal routine.
Banks want to be able to capitalize on that, so they’ve teamed up to create an app that can compete directly with Venmo.
The Venmo Killer?
This app is the project of over 30 banks, from Bank of America to Wells Fargo to Chase. It’s not their first foray into P2P payment apps either. Zelle is the next step beyond clearXchange, which was owned by a group called Early Warning. Early Warning was recently purchased by a consortium, incidentally, made up of seven of the biggest banks in America. So the banks have had P2P mobile payment apps in their sights for a while. This is just the next iteration.
ClearXchange will become Zelle. It will reach an expected 86 million banking customers.
The big benefit of Zelle is it can be used across any of the banks in the group. Users will only need to know the email or phone number of the person they are sending money to. And, the process can be accessed through both the app and on the participating bank’s website through your browser (both mobile and desktop).
The feature that the bank consortium hopes will be the Venmo killer is the speed of the transaction. Unlike Venmo, which serves as a holding place for the money (users have to transfer the funds to their bank account if they need the money, similar to PayPal), Zelle allows users to have access to their money via their bank account right away.
This means Zelle users are potentially saving days of time waiting for their money to arrive. They will have it within moments. Venmo is currently working on being able to speed up their processes this year, according to a spokesman.
What remains to be seen is how dedicated Venmo users will take to Zelle. The thing that makes Venmo fun, the emjoi’s, doesn’t appear to exist in the Zelle world. Where Venmo allows users to make their feeds public (without showing actual funds), Zelle does not.
It will be interesting to see how Millennials react to Zelle. It could end up being the more mature, Generation X P2P app of choice for people and even brands, to come.