New Venmo Features Encroach on Checking Account Offerings

by on Feb 26, 2018

Despite already providing a comprehensive person-to-person transfer service with many loyal users, Venmo is continuing to improve its offerings by facilitating same-day transfers as well as physical and online payments. These features are already offered in some form by its parent company, PayPal, but were recently implemented in a way tailored to Venmo users. Such improvements also arrived as banks are trying to catch up to Venmo in the P2P transfers space by marketing their own network, Zelle, as a fast and free alternative already integrated into the online banking experience.

For the past several months, Venmo has quietly invited users to beta test a debit card linked to their account, which they can use to make payments with their Venmo balances. These purchases then show up in the app, with options to split or share the transaction in the user’s social feed. While many are unlikely to share every purchase, the ability to review a transaction and then seamlessly request money based on the transaction enhances both the payment solution and the P2P service. Much like a debit card with some form of linked overdraft protection, Venmo will transfer money in increments of $10 to cover purchases with the card that exceed a user’s balance, notably without charging a fee of around $10 like most banks.

Whereas the PayPal Cash card encourages users to treat their account like a checking account—with cash, check and direct deposits—the Venmo card seems merely to supplement the app’s experience by favoring convenience and requiring minimal maintenance. Still, to appeal to those who see the tongue-in-cheek design as more “doh!” than “dough,” the card will need an aesthetic update, preferably in line with the sleek design of the Square Cash card.

The other new features, instant transfers and online payments, are already available to all Venmo users. The former enables users with eligible debit cards to move funds in their Venmo balance to a bank account within 30 minutes. Though these optional transfers carry a $0.25 fee, instant access to funds makes Venmo a viable option for high-value transactions like paying a roommate for rent. And banks can no longer claim Zelle to be the only instant transfer service—just the free one. Meanwhile, online payments with PayPal merchants, enabled last October, leverage the firm’s existing merchant network to provide another option at checkout.

While it doesn’t seem that Venmo seeks to replace checking accounts, it may cause active users to rely less and less on their bank’s services. Meanwhile, Venmo will get a larger share of merchant processing fees and valuable data on the purchasing habits of its users.