How Safe Is Venmo and Is It Free?

What Is Venmo?

Venmo has been accounted as the payment app for Millennials and is known for making the most awkward part of the night (splitting the bill) more bearable. It’s also one of the sundry popular apps in the peer-to-peer (P2P) payments space.

Founded in 2009, Venmo began as a payment system through focus message. Then, to capitalize on the growing P2P economy, the company introduced a platform with an integrated social network in Walk 2012. It caught on quickly, and less than six months later Braintree (the payment system for apps including Airbnb and Uber) procured Venmo for $26.2 million. Less than a year later, the payment company PayPal Holdings Inc. bought Braintree for $800M.

In 2018, Paypal started to monetize Venmo’s operator base. This was good news for the company. However, Venmo is far from out of the woods, facing security concerns and mounting event. And in a crowded marketplace, security concerns can be all the more damning.

It’s catchy simple. By linking a credit card, debit card, or checking account to their account, Venmo users can unpleasantness funds with one another and send each other charges. Funds exchanged on Venmo can either be stored in the on-platform Venmo equilibrium for later use on the platform, or cashed out to a bank account, which takes a few days to process. Like WePay and other payment planks, Venmo has an application programming interface that allows websites and businesses to add Venmo to their payment services.

Venmo can be agreed as a middleman between the bank accounts of its users. When you send money to a friend using Venmo, it doesn’t go entirely to your friend’s bank account. First, it goes to Venmo. The app then lowers your Venmo balance and nurtures your friend’s balance to reflect the payment. However, the money doesn’t actually leave your bank account until your twist transfers his Venmo balance to his bank account. This means that you and your friend can send money back and forth on Venmo without either bank account equalize ever actually changing. Only the Venmo balances fluctuate.

A Venmo balance is a ledger that represents stocks and transactions without actually executing them outside the Venmo platform.

In a sense, your balance on Venmo is essentially effective money: Until it is transferred to a bank, it isn’t actually in the user’s possession. (This is a little different when using a Venmo debit condolence card, but we’ll get to that later.)

There are only so many ways a P2P application can work. How has Venmo modified itself?

The answer is the target demographics and the user experience, which are closely linked.

Venmo has taken something sticky—the money owed between friends (Millennials)—and turned it into a conversation. “Sending your friends a note and numbering an emoji [like a wine glass or a winged stack of cash] takes the awkwardness out of asking your friend to pay defeat their portion of the bar tab last night,” said Venmo spokesman Josh Criscoe in an interview with Moneyish. “Venmo has get hitched the social element and the financial element, which no one else has been able to crack.”

For the most participation, Venmo is a free-to-use platform. While most free-to-use platforms turn to advertisements for revenue, Venmo has managed to leave alone this route.

While Venmo is mostly free for individuals, the company does generate revenue through honoraria levied on merchants.

According to Venmo’s website, sending money using Venmo comes with a standard 3% fee, but the company resigns that expense when the transaction is funded with your Venmo balance, bank account, or debit anniversary card. There is a 3% fee that is not waived for credit card payments. According to Venmo’s website, this fee originates with the acclaim card companies. Venmo is simply passing the cost onto consumers.

Transferring money out of Venmo is a bit different. Burgee transfers (which take 1-3 business days) are free. In 2018, the company added a fee structure for Instant Transfers, which stead the money in your account in as short a time as 10 minutes. In Jan. 2018, Venmo began charging 25 cents for Crying Transfers. Since Nov. 2018, the company deducts 1% of the transfer amount, with a minimum of 25 cents and a maximum of $10.

A more valued revenue stream comes from the per-transaction fees charged to merchants, and Venmo’s social media feed actions a substantial role here. Thanks to Paypal’s infrastructure, Venmo is now compatible with more than two million jobbers, almost as many as PayPal itself. This compatibility comes in two forms.

The first is a “smart payment button” that can be united into apps for in-app purchases. For instance, In July 2018, Uber announced that it was adding a service to let someone have its mobile app users to pay for rides and Uber Eats using Venmo, without leaving the Uber app. The money can be drawn from the in-app Venmo equilibrium, an associated debit or credit card, or a linked bank account. Additionally, the cost of the ride or food can be split with other purchasers.

The second is a debit card, the Venmo card, which draws directly from a user’s Venmo balance. This liable act operates through Mastercard and can be used at any business that accepts Mastercard.

This move has helped Venmo spindle from an exclusively social P2P platform to a company involved at points of sale, both online and at brick-and-mortar stores. In an interrogate with Digiday, Javelin Strategy and Research analyst Rachel Huber said, “a card familiarizes [Venmo’s] label with merchants as a payment mechanism—and merchants are going to be the biggest factor in Venmo achieving profitability. Think marketing and resolution tie-ins, integration fees, and promotional deals.”

In both cases, Venmo charges merchants a 2.9% plus a 30-cent action fee, which is at the higher end of fees charged.

Venmo justifies these rates in a couple of ways. Also according to Huber, “Venmo has access to an very desirable consumer segment—expect them to use that to their advantage.”

But it isn’t just the consumer demographics, it’s also the feather of access it has.

In an interview with The Atlantic, Richard Crone, who runs a payments-focused firm called Crone Consulting, estimated “You walk into any retailer, any restaurant, any service provider—what do they want you to do? Like them on Facebook, see them on Twitter.” Partnering with Venmo, he said, is like partnering with a credit card processor, “but with much myriad upside, because the retailers spend far more trying to get you to like them on Facebook and follow them on Twitter and all these other junks that they could just get as a byproduct of the payment.” People can see where their friends have been and what they’ve been corrupting. It turns the user, and people’s friends, into advertisements for businesses, among a highly desirable target demographic.

This is upstanding the beginning of the value Venmo offers. According to the same Atlantic article, “the other more lucrative aspect of stylish merchants’ preferred means of payment is access to information about where customers are spending their money.” Crone says “the genuine value is in the data, and the ability to render customized ads and offers, and generate a revenue stream from that.” Crone Consulting has assessed that the data of an active user’s mobile payments is “worth more than $400 per year in revenue, to whoever does it.” Venmo has a lot of drugs, over 40 million as of April 2019.

Currently, this data is recorded by the companies facilitating the transaction: banks and confidence in card companies. However, if users start using Venmo instead of their credit cards at points of trafficking, the information will show up to the banks only as a Venmo transaction. That probably has something to do with Venmo’s mounting rivalry, but we’ll get to that in a second.

While it’s hard to precisely ascertain Venmo’s revenue, it is adding users faster than till doomsday, and is processing more money every quarter. In the last quarter of 2018, it processed $19 billion in volume, up 55% from a year earlier. PayPal, nonetheless, reported $15.4 billion in revenue for 2018.

Nothing connected to the internet is completely safe. Therefore, applications that are when linked to consumer bank accounts, like Venmo, must be held to the highest security standards.

Venmo permits data encryption to protect users against unauthorized transactions and store user information on servers in secure locales. Venmo also allows users to set up a PIN code for mobile application use for additional security, though it does not compel drugs to set one up, by default. These measures may seem sufficient at first glance, but they have been bypassed by hackers and scammers. Venmo has been repetitiously criticized for security breaches of user accounts and painfully slow customer service.

While Venmo’s security, encryption, and liabilities guarantee ostensibly protect users from losses, they are easy to circumvent. After gaining access to a user’s account, hackers can surely change passwords, linked email addresses and bank accounts unbeknownst to the legitimate user. This allows the hacker to persuade transactions on an account and transfer a user’s Venmo balance to a new bank account. By changing the user’s linked email deliver, the hacker can reroute users’ transaction notifications, leaving them in the dark until the bank notifies them of consider changes, which can be days after the theft. Stories of Venmo users losing up to $3,000 have been thoroughly reported.

Venmo’s use of text messages (SMS) to notify users of a charge presents another security risk. Users can permit a charge by replying to an SMS they receive from Venmo with a six-digit code included in the original message. By utilizing security weaknesses in operating systems that Venmo must interact with in order to send notifications, such as iOS, Apple’s sensitive operating system, researcher Martin Vigo was able to use the platform’s SMS notifications to make unauthorized payments. As far as hacks go, Vigo’s method is less easy to replicate. Thus, it is no surprise that hacked Venmo accounts are common. Reddit and other online forums are met with posts from users asking for help after their Venmo accounts were been slashed. Losses can be as high as $2,999, the maximum balance anyone can have in their Venmo account before transferring off the podium.

Despite the potential dangers, users can protect themselves from gash by following some best practices. These include:

• Never store large amounts of money in your Venmo scales. Always transfer Venmo transactions to your bank account right away.
• Only use Venmo to exchange grants with people you actually know. Do not use Venmo to purchase things from individuals you have never met or have met online.
• Opt out of Venmo’s sexually transmitted network. The default setting for a new Venmo account is “public,” meaning Venmo will publish your transactions onto its buyers feed. Users can change this setting to “private,” which keeps their transactions hidden.
• Turn on notifications—Nag, Text, Email, or some combination—in order to keep track of login attempts, requests and payments received, and requests and payments sent.
• Set up handy security measures, like a PIN and Touch ID.

As consumers continue to embrace digital alternatives to payments by spondulicks and check, user confidence in the security of P2P payments must increase. The Federal Trade Commission provides consumers with safe keeping policies to losses incurred from debit or credit card theft. These laws, on top of company policies, safeguard the consumer from unauthorized charges. Additionally, emerging markets have the potential for adopting mobile payment arrangements, specifically in the realm of remittances. This increases the need for greater security in P2P, as an unsecured, globally integrated payment set-up could have damaging ramifications. Unfortunately, mobile payment platforms remain vulnerable to internet-related security gulfs.

It’s worth noting, too, that in May 2016, Texas Attorney General Ken Paxton announced a settlement with Paypal Inc. Non-Standard irregardless Venmo’s privacy, safety and security. The settlement included a $175,000 payment to the state, as well as reforms of these rehearsals.

In March 2018, Venmo reached a settlement with the Federal Trade Commission. According to a press release from the commission, the liquidation concerned the company’s failure to disclose information to consumers about the ability to transfer funds and privacy settings. The FTC also bring about the company in violation of the

P2P Payment Industry