Wednesday , May 31, 2023

Venmo Leverages Instant Transfers As It Digs for Revenue

With real-time payments in the headlines these days, it’s not surprising payments companies are jumping on the faster-payments bandwagon (more on this in “The New Reality in Real-Time Payments,” this issue). But some, like PayPal Holdings Inc., are finding ways to use speedier funds to bolster revenue. PayPal last month announced its latest instant-transfer service, this one allowing Venmo users to move funds in minutes to their bank accounts.

The new service relies on PayPal’s connections through JPMorgan Chase & Co. to the Real Time Payment (RTP) network offered by The Clearing House Payments Co., a processing platform owned by 25 of the nation’s largest banks, including Chase.

TCH launched RTP in November 2017 and has brought 15 institutions live so far. Earlier in the month, the Federal Reserve said it will launch a real-time payments service called FedNow by 2024.

The new service for Venmo follows PayPal’s move in March to make instant transfers to bank accounts available for PayPal users. That service, too, relies on the link to TCH. And pricing for both services is the same: a 1% fee, with a $10 cap.

Such revenue-raising services are important for Venmo, which is generally free to users for peer-to-peer transfers. Venmo’s rapid growth has forced PayPal to seek out sources of revenue for usage, including acceptance fees to merchants and now levies for instant transfers. For example, PayPal introduced instant transfers last year for Venmo users who want to move money to a linked debit card, with the same 1% charge.

Just how many Venmo users there are was a closely guarded secret until this spring, when PayPal reported the service had more than 40 million. In the April-through-June quarter, Venmo racked up $24 billion in volume, up 70% year-over-year. But the service faces fierce competition from Zelle, a P2P service controlled by some of the same banks behind TCH, including Chase.

While the new instant-transfer feature for Venmo broadens availability to users who have bank accounts but not debit cards, that component is likely not terribly sizable, notes Sarah Grotta, an analyst at Mercator Advisory Group, a Marlborough, Mass.-based consultancy.

“It’s hard to know how popular this feature will be. It’s difficult to even gauge how successful the current instant methods are,” Grotta says in an email message.

Also, while TCH’s RTP service now reaches 51% of U.S. demand-deposit accounts, it’s also hard to know how much overlap that coverage could have with the population of Venmo users, Grotta adds.

The new fast-transfer service began rolling out in mid-August and was expected to be “widely available” in the ensuing weeks, announced a Venmo blog post, which advised users to update their apps. Transfers may not always be “instant,” and can take up to 30 minutes, the post advised, depending on the capabilities of the user’s bank.

The standard transfer, which moves money to the user’s bank account in one to three business days, continues to be available.

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