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PayPal Holdings Inc.’s Venmo peer-to-peer payment service has been a fabulously popular product among users, but from PayPal’s point of view it has one big problem: It’s free. Since users don’t pay for the service, PayPal has to seek Venmo revenue elsewhere. Now, with a test about to start for a plastic Venmo debit card, PayPal may have found a way to both encourage balances and extract income from merchants.
To be sure, the new product is in its very early stages, and may not necessarily see general distribution. An unspecified number of invitations to participate in a test for a Visa-branded card are going out now to Venmo users, a spokesman tells Digital Transactions News by email. “We have started sending a limited number of beta invitations,” he says.
Little is known so far about card’s characteristics. The spokesman confirms the card is intended to be free to users and will allow them to tap their Venmo balance. They can designate a secondary source of funds, such as a checking account, in case their Venmo account runs low.
But things are subject to change, the spokesman cautions. “While we’re excited to hear what people think, beta features are not guaranteed to see general release,” he says.
PayPal has for some time looked at ways to generate revenue on Venmo transactions. In the fall of 2016, it rolled out a service called Pay With Venmo that allowed merchants to start accepting Venmo wallet transactions, for a fee. Now, with a debit card, Venmo will start earning interchange income, along with the issuers, New York City-based Metropolitan Commercial Bank working with San Francisco-based startup Shift Financial Corp.
In this way, the P2P service is following a logical course, observers say. “Once you start facilitating financial exchanges, you need to make money on the service, and the best way to do that is to facilitate payments to merchants,” notes Rick Oglesby, principal at AZPayments Group, a Mesa, Ariz.-based consultancy.
But there is likely more to the strategy than opening a new revenue stream. The card will also encourage users to build up bigger balances, knowing they can spend the money at merchant locations. ”This is about tightening up the hold on consumers’ everyday spend,” says Patricia Hewitt, an independent payments consultant.
Still, there will be hurdles for PayPal and Venmo. Based on what is known about the new card, some experts note, there isn’t a clear reason to prefer it over other debit cards. “I’m not sure why a consumer would use a Venmo debit card when they could just use their bank debit card. Is there going to be some sort of incentive to do so?” asks Aaron McPherson, a payments consultant who follows digital wallets.
McPherson points out PayPal has tried a point-of-sale strategy before, without notable success. But, as he also notes, PayPal has long experience with plastic cards, including a business debit Mastercard linked to the user’s PayPal balance.
Nor is this the first such effort by a fintech in the world of plastic debit cards. In June, Square Inc. launched its Square Cash Card, a Visa card linked to the Square Cash P2P service.
