Venmo: Rapidly Replacing Cash in the Pockets of Millenials

With an acute recognition of its customers’ preferences, a simple and intuitive interface, and strong network effects, Venmo is rapidly (even virally) making its impact in peer-to-peer transfers, replacing cash and checks among young adults.

Go to dinner with a group of HBS students and it is more than likely that you’ll end up splitting the bill with Venmo. As most of us can attest, the mobile payments app has rapidly become a part of young adults’ weekly, if not daily, lives. With an acute recognition of its customers’ preferences, a simple and intuitive interface, and strong network effects, Venmo is rapidly (even virally) making its impact in peer-to-peer transfers, replacing cash and checks among young adults.

Recognizing What Your Customers Want

Venmo’s focus on the attributes that matter most to millenials has been a primary driver of its success. Whereas many traditional banks have focused on building out a large network of retail branches and ATM locations to best serve their customers, Venmo has capitalized on the fact that millenials prefer not to carry cash and rarely visit banks, opting instead for digital deposits and transfers. Perhaps most important to its customers, payments through Venmo are free of charge to users linked to a bank account or debit card. 

Simplicity and Convenience At Your Fingertips

Venmo’s success is also largely in part to its ease of use. The mobile app’s simple and intuitive interface is user-friendly and easily links to a bank account or credit card. It allows users to make payments when and where they want. Finding other users requires a simple search of a users’ contacts ofrFacebook friends (name or phone number also work), and users can both make payments and request or remind other users of payments they may have forgotten. Venmo even caters to the way in which millenials typically communicate. Making a payment is as simply as sending a text message. When prompted to enter a description for a payment, users are shown relevant “emojis” to describe the payment. 

Leveraging Network and Social Effects

Arguably most important, Venmo has cemented its success by leveraging network effects. Its wide user base makes it the obvious choice for payments and serves to lock in customers. The more users it gains, the more valuable the service becomes. Users themselves often do much of the customer acquisition for Venmo, asking friends to download the app to pay them. Among many social groups, not having Venmo can become a real inconvenience. As such, Venmo has seen viral adoption among some user groups, particularly on college campuses. Venmo is so ubiquitous that its name has become a verb: users agree to split a bill by having one person pay and the others “venmo” him or her.

Venmo has also leveraged social effects to engage its users. The Venmo news feed shows descriptions of payments between users’ friends (although no dollar amounts are disclosed), keeping users up-to-date on their friends’ activities.


Launched in 2012 (after two years in beta testing), Venmo was purchased by Braintree just five months later for $26.2m[1]. In 2013, PayPal acquired Braintree. Venmo processed $2.4b in total payment volume in 2014 (although small compared to PayPal’s total payment volume of $228b, 20% of which was from mobile).[2] Venmo generates no revenue on peer-to-peer payments, but it is rapidly establishing a huge user base that it plans to eventually monetize. That user base should in turn draw merchants, to whom Venmo can charge a fee on transactions. With mobile payments in the U.S. expected to reach $90b by 2017, this represents a huge opportunity that Venmo is well positioned to capture.[3]


[1] Robehmed, Natalie. “Venmo: The Future of Payments for You and Your Company.” Forbes. July 2, 2013.

[2] PayPal Q4 2014 Fast Facts.

[3] Gillette, Felix. “Cash is for Losers!” Bloomberg Business. November 20, 2014.


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Student comments on Venmo: Rapidly Replacing Cash in the Pockets of Millenials

  1. I agree with everything you’ve written, and have used Venmo at least 5 times today. How do you think Venmo can maintain it’s competitive advantage in the long run if their competitive advantage is only it’s user interface. If there is no advantage in the underlying technology, in theory, a competitor with a large subscription base (Chase/CitiBank) can replicate the application.

    Venmo will need to be smart about monetizing their application in a way that doesn’t turn of the Millenials they’ve managed to attract by not imposing any fees. It will be interesting to see what they come up with.

  2. It’s interesting to compare Venmo’s strategy to Square’s. Square started on the merchant side by offering really low credit card processing fees to small businesses with the hope consumers would then get on board but consumers haven’t and Square has been struggling. Venmo started with the consumer side and has been very successful and is now hoping to get more businesses to adopt. Businesses could be forced to adopt if the consumer-base is large enough but other factors that will lead to adoption will be their rates, ease of use, and availability of their API.

  3. Interesting read. I’ve always wondered how Venmo makes money. I’d heard rumor that they re-invest your Venmo balance somehow, before you cash out and transfer the funds to your bank. Have you heard that? Any truth? If true (or possible) I’d be curious how big of an opportunity that is.

  4. Thanks for the great write-up on Venmo and laying out why it’s achieved so much success thus far – I absolutely agree about the great customer experience, simplicity/convenience/mobile, and network effects. Like others have mentioned, I think it’s important to note that Venmo has other competitors both directly (Square Cash, Google Wallet, etc.) and indirectly (bitcoin wallets like Coinbase, Circle, Xapo, etc.) that accomplish similar tasks and have built up large user bases as well with their own network effects, highlighting the tremendous competition in this space. Furthermore, bitcoin wallets have the advantage of international usage, whereas Venmo requires as U.S. banking account. So, as much as we use Venmo here at HBS (I myself use it multiple times a week), I wonder what will differentiate Venmo in the long-run compared to the other offerings out there. For example, Apple Pay will likely end up becoming an easier process for users than opening up the Venmo app — is the social aspect of Venmo enough to keep me using it? I’m curious to how other players will also innovate in this space and how Venmo’s position in the market will change accordingly.

  5. This is super interesting given that we use Venmo everyday at school! I wonder though if they would be able to monetize this eventually or if they will try to make money out of short-time investing of their clients balances like Jon says (not even sure this is legal without the clients’ consent).

    Another interesting critic that I have read is the security it provides. While it manages very sensitive information (your bank accounts and money), an unlock stolen phone could be a real nightmare. Do you know how can a user block his/her Venmo account if something like this happens? And moreover, how is venmo replying to the latest critics about its security? (

  6. This was a great read. I wholeheartedly agree about the great UX within the app, although I seem to hear one common complaint that results from the process. When one person picks up a large tab and is venmoed by everyone else, they stand to earn all of the resulting credit card points. Also, as many digital venmo transactions are directly accompanied by a credit card transaction, I’m curious if there is a partnership opportunity between venmo and a credit card company, in which, for example, Amex will give bonus rewards points to a user if they pick up a big tab and use venmo versus conceding to their Visa-carrying friend. Even better, if they could distribute the rewards points among all people within the transaction (even non-Amex users) it could be a good channel for customer acquisition.

  7. I believe Venmo is a great example of a winner, at least, in having a large customer base. Its hard to believe for me how they will compete with traditional credit card providers, as they have already an inmense intalled base and the relationship with banks. I personally believe that the best for Venmo, could be to be aquired by any of these companies (e.g. Amex, VISA, MC) and leverage its great momentum…

  8. Venmo does seem to have emerged as one of the winners in payments – which leaves me and many others mystified as to why they exited so early to Braintree when they could have be sitting on a huge valuation 12-24 months later. I’m guessing it had to do with founder and cash issues, but having raised only $1.2 million in seed funding, they could have easily raised another modest round. Instead, Braintree (which raised $34 million) reaped the Venmo upside in its own sale to PayPal.

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