Can Banks Keep Up With Venmo?
In 2009 the app Venmo was launched by two entrepreneurs, Iqram Magdon-Ismail and Andrew Kortina, and in doing so the application changed the way individuals exchanged money between each other and with businesses. Venmo is a money sharing application that allows any individual with a bank account and a smartphone to enroll and start transferring money to other Venmo users. Venmo has shifted the way people transfer money from cash or check to a completely electronic and paperless transaction. Monthly and/or frequent payments such as rent can be paid using Venmo as well as smaller fees such as repaying a friend for dinner. Venmo has pioneered an easy and efficient way to transfer money.
As Venmo’s popularity continues to rise big banks such as Citibank, Bank of America, and Wells Fargo have begun to recognize the market for peer-to-peer money transactions. An application similar to Venmo, named Zelle has been created and since then has been backed by more than 30 large name banks. Despite this development, Zelle and banks will continue to fall behind because of Venmo’s captured market and continued innovation.
What makes Venmo unique, and perhaps what the company uses to attract and keep most of its consumers, is the social aspect that’s built into the app. Venmo allows users to make payments public or private as well as add a brief message or emoticon. Venmo is using its platform to allow its customers to socially engage with one another whereas the banks using Zelle don’t include any sort of social interaction between consumers. Additionally, because Venmo was introduced, and created the now booming peer-to-peer market, in 2009 the application has captured a large share in the market. As explained by Ruth Reader in her article How Peer-To-Peer Payment Pioneer Venmo Grew Up And Got Serious, around $18 billion dollars was exchanged between users in 2016 and that number has continued to grow as time has gone on. One aspect of Venmo that banks and Zelle have failed to incorporate is the transfer of money between individuals and businesses. Certain restaurants in New York have now started excepting Venmo as a form of payment; this application of Venmo allows users to go completely cash and credit/debit card free to restaurants. As more and more restaurants start accepting Venmo for bill payments the lack of credit card transactions is going to start affecting banks. As Venmo continues to innovate and create a more efficient product banks are going to struggle to keep up with the changing environment and lose out on capitalizing on the peer-to-peer market.
Venmo has solidified its place within the money exchanging market, and with new developments on the horizon, it’s clear the Venmo is staying for the long run. Banks will need to alter their current Zelle application to meet the high market standards. If banks choose not to adjust to the needs and demands of consumers than there’s a good chance that Venmo will continue to outperform.
Reference 1: https://www.forbes.com/sites/forbesfinancecouncil/2018/03/12/why-banks-are-scrambling-to-build-a-venmo-for-business/#586e16e06bd7
Reference 2: https://www.fastcompany.com/40400786/how-peer-to-peer-payment-pioneer-venmo-grew-up-and-got-serious
5 comments:
Unlike most of my friends (most college students, in my opinion), I do not have a Venmo account. I can see the benefits of Venmo: I can pay people right away through my phone, I don’t have to wait until I get cash to pay someone, etc. One of the big reasons I do not use Venmo is because my bank has Zelle. Why would I need to download another application when my bank’s app is connected with Zelle? Personally, I do not like creating more accounts than I need and something about how Zelle is connected to my bank’s app gives me more of a sense of security. If our personal banks are using Zelle, I am assuming they have done their research into Zelle’s security because if they don’t, then a lot of people will get angry with the banks. I don’t think banks will risk their customers with an application that is not secured.
Also, the only major differences I see between Venmo and Zelle is the social interaction and incorporating the transfer of money between individuals and businesses. The transferring of money between individuals and businesses is, I think, not that big of a deal. We live in a world that has Apply Pay, Google Pay and Samsung Pay. We will just use of phones to make easy purchases. Additionally, if banks want Zelle to be like Venmo, then I think they could try marketing to businesses to have them use Zelle. As far as the social interaction, I don’t get how that is new and needed. We already have other forms of social media and we can just as easily send text messages to our friends to tell them that we paid them back.
From a financial point of view, I believe that Venmo, Zelle, other money sharing applications and easy forms of transaction is a road to consumer debt. Yes, I have used these technologies and I agree that they are convenient, but I think it opens a door for people to be unwise with their money. The easy aspect of these technology creates an addicting behavioral component. It is easier to tap your phone than reaching into your wallet and counting out the cash to pay a bill. People will not be as mindful of the money they currently have because it isn’t tangibly in their pockets. In my Personal Finance course, a way to save money is only carry cash or a debit card with you. This is because you know exactly how much money you have to spend at that given time. If we are using Zelle, Venmo and other money sharing technologies, we need to be more aware of the money we are giving away and spending.
Being a part of the community that has Venmo, I am able to say that it is convenient to repay a friend back within minutes without feeling any guilt. I have used Venmo on countless occasions for shopping, splitting the bill for food, and just repaying my friend back when I asked them to buy me something. We have all had those moments where we were short on cash and needed a way to pay for something. As a college student I do not carry my debit card with me all the time, I carry my phone and swipe. When I go back home for breaks, I often forget my swipe is not accepted outside of Loyola (evergreen isn't a universal thing, unfortunately). Venmo has saved me when I literally had nothing in my wallet. It is unfortunate that not all banks use Venmo. It is a pain for the my few friends who’s banks don’t use venmo but use Zelle. I have been asked a couple times why I don’t download Zelle and use that for those whose cards can’t work with Venmo. I honestly honestly don't want to download another app, the convenience of just having that one app.
Artificial intelligence has advanced to the point where bank visits are less frequent and/or useless. Venmo cut out the middleman and allows the user to transfer the money in seconds. Who needs cash anymore when you could use your phone by opening an app. Why would someone go to the bank to take out money anymore? Most people use a debit card, credit card, apple pay and venmo. The ease of just a couple taps in the venmo app can let the public, friends or just between the two parties know the transaction of money taking place. Venmo also allows you to transfer the money that you received into your bank or keep it in you venmo account.
As Venmo grows in popularity especially with college students, Zelle which is less known to the banking world, is often overshadowed. This could easily be comparable to Uber and Lyft or Bird and Lime scooters, many people only have one account not both and one is often more popular than the other. Although Zelle is a substitute for those banks who don’t use Venmo, Zelle will never be as popular because of its late entrance to the online banking scene.
Much the way that Uber and Lyft have changed the landscape of transportation, Venmo has been as disruptive to the process of exchanging cash. Venmo has taken the IOU and turned it into an instantaneous process of repayment. Gone are the days of needing money from a friend and relying on a good word or trust to see the money come full circle. Today, not having Venmo is not an excuse; it is genuinely antisocial to be unable to instantly transfer money to someone in 2019. The meteoric rise of Venmo and peer to peer transactions is one the banks have rightfully taken seriously. In a society transitioning away from paper currency, it was only a matter of time before an extremely informal digital payment system captured the American consumers’ attention.
As more businesses accept Venmo, paying with a Venmo balance will be ideal relative to running up a credit balance. The smartphone has replaced hundreds of gadgets over the years, serving as a computer, phone, camera, music player, and infinite more devices all in one. The next item that the smartphone seems poised to kill is the humble wallet. The option to upload cards into a smartphone and pay with a tap of the device replaces the need for a physical card collection in your pocket. Now, the popularity and growing acceptance of Venmo has replaced the shrinking niche that cash still held onto. This summer, if I mow a lawn or walk a dog and the customer shoots me a Venmo instead of cash, I won’t be surprised. If anything, it will be a welcome change for new times ahead.
Personally, I do not use Venmo very often and only have an account for the rare occasion I need to borrow from a friend or they need to borrow from me. However, I do see why so many people are beginning to use it as it can be much more convenient than withdrawing cash to give someone or writing a check. As well as this, Venmo also acts as an easy backup when someone is not carrying cash or their credit/debit card, because they’ll almost always have their phone on them and still be able to make a purchase. I do think Venmo poses a lot of threats to some banks source of income. Many banks profit from transaction fees and late fees from customers, as well as by offering things like loans and other bank products when customers visit the bank to make deposits. With the loss of some of their profits, it’s easy to see why banks might be worried. However, I think Venmo’s disruption to the market has some positive impacts on banks. Due to having Venmo as competition now, banks are being pushed to move further into the technological age and develop similar applications, like Zelle, to draw customers back to them. So while Venmo does pose some threats to banks, I think this will only encourage banks to continue improving and finding new ways to appeal to consumers who value ease of use. For me, I’d much rather be depositing my money into the bank rather than leaving it in a Venmo account anyways. I prefer the security that banks can offer, and the fact that my money in the bank will be earning interest versus money that is sitting in Venmo waiting to be transferred elsewhere.
Source: https://rctom.hbs.org/submission/venmo-should-banks-be-worried/
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