What Is Venmo?
Venmo started out as a free peer-to-peer (P2P) payment app available for iPhones and Android phones. That service is still free, as is using Venmo to pay participating merchants, who now number in the millions. You must be 18 or older to have a Venmo account.
Some other Venmo services carry a fee, however. Payments that go through a credit card account rather than a linked bank account or the user's Venmo account incur a 3% fee. There are other miscellaneous fees for transferring money instantly from Venmo to a bank and for depositing checks. Venmo also issues a debit card and a credit card that are accepted at a growing list of local and national retailers. Those products also carry fees.
Key Takeaways
- Venmo got its start as a peer-to-peer payment platform with social network features.
- That original Venmo peer-to-peer function remains free (as long as you don't use a credit card to pay).
- Venmo can now be used to pay millions of retailers through the app or through a Venmo-branded debit card or credit card.
- Some features such as instant money transfer or depositing checks carry fees.
- Merchants who accept Venmo pay the bulk of Venmo's fees.
How Does Venmo Work?
After downloading the Venmo app from the Apple Store or the Google Play store, users are given options to link their Venmo accounts to a credit card, debit card, or checking account. Once enrolled, a Venmo user can instantly begin exchanging funds with any other Venmo user.
For peer-to-peer transactions, Venmo is a middleman between the accounts of two users conducting a transaction. For example, say Addison agrees to sell Kya a bracelet for $50. Kya sends Addison the funds via Venmo, which then raises the balance in Addison's Venmo account by $50 while reducing Kya's Venmo balance by the same amount. Neither pays a fee.
In this way, a Venmo balance is essentially a virtual ledger that represents funds changing hands, within the Venmo platform. Until Venmo transfers the money into the recipient's bank account, it isn't technically in that user's possession.
How to Send or Request Money
Money can be sent or requested by tapping the pay or request button in the Venmo app and then entering the other party's email address, phone number, or username. If you are the person receiving funds, you can either keep the cash in your balance or transfer it to your linked bank account. Using Instant Transfer rather than the traditional slower delivery adds a fee.
Money can be added to your Venmo account from your bank as well as from a Venmo debit card.
You can make payments through the app without holding the necessary funds in your Venmo account. If a payment exceeds your current Venmo balance, the money will be taken from your linked bank account. If the transfer amount is equal to or less than your balance, the funds stored on the platform will be used.
There's no fee for making a payment unless you use a linked credit card.
Age Restrictions for Using Venmo
Venmoisn’t yet available for younger teenagers. The app’s user agreement specifically requires users to be at least age 18. If Venmo eventually does offer accounts for minors, parents should be sure to protect their children’s privacy by setting all transactions to “private” so that their children’s recurring purchases, locations, and payments aren’t accessible to the public.
What Are Venmo's Fees?
Opening a Venmo account is free and there are no monthly fees. As noted, a simple Venmo transaction from a user's bank account, Venmo debit card, or Venmo cash balance is free of charge. If a credit card is used to pay, Venmo charges the sender a 3% fee.
Other services, listed below, carry additional charges:
Instant Transfer Fees
You can Instant Transfer money from your Venmo account to any U.S. bank account or participating credit card account for a fee of 1.75%. "Instant" means 30 minutes or less in this case.
You can avoid this fee by choosing the standard option, which is free and takes three to five business days.
Credit Card Charges
Venmo introduced its own credit card in 2021, and it carries a variable but steep interest rate just like most other credit cards. The interest rate as of March 17, 2023, is 19.49%-28.49%, depending on the credit rating of the applicant.
Cash advances cost the greater of $10 or 5% of the amount. Balances on cash advances carry an APR of 20.99% plus the current prime rate.
The credit card comes with a cash-back feature of 3% on your "top spend" category, 2% on your second most-used category, and 1% on everything else.
You can use your Venmo debit card free of fees as long as you don't use it to withdraw cash from an out-of-network ATM and refill it only from your linked bank account or your Venmo balance.
Debit Card Charges
The Venmo debit card, issued in partnership with Mastercard, is free to use except for some ATM fees, which you can avoid if you're careful.
ATM withdrawals are free from the MoneyPass network but cost $2.50 each from a domestic out-of-network ATM. Further, a $3 over-the-counter withdrawal fee applies when a signature is required for a withdrawal at a bank or financial institution.
There are no annual or monthly fees, processing fees, or interchange fees, Merchants pay the transaction fees.
How Long Does It Take To Send and Receive Money?
- Any money sentfrom one Venmo user to another should appear immediately in the recipient's account.That's free.
- For external bank transfers, standard three- to five-day delivery is free but Instant Transfers cost 1.75% of the amount being transferred.
- If you add funds to your Venmo balance from your bank account, it can take three to five business days for the transaction to go through.
The Social Side of Venmo
Venmo has dominated the P2P payment market by making the transfer of funds fun and interesting. Users can energize the exchange by using emojis to describe their payments or requests. For example, if one friend fronts his buddy the cost of a hamburger, the friend can issue a Venmo payment back to him, adding a burger emoji as a playful gesture.
That can take the awkwardness out of asking your friend to pay back his part of the meal tab.
How Does Venmo Make Money?
Venmo derives a significant pot of revenue from the per-transaction fees that it charges merchants. Thanks to PayPal's infrastructure, Venmo is available at more than 2 million merchants.
Venmo charges merchants a 1.9% fee, plus 10 cents per transaction. Companies are willing to pay these rates due to the number of new customers Venmo brings to their doors. Venmo also offers participating merchants a higher social media profile.
Another stream of merchant revenue is derived from the Pay-With-Venmo button that can integrate into other apps for in-app purchases. For example, Uber allows its app users to pay for rides and Uber Eats using Venmo without leaving the Uber app. Uber pays Venmo a fee for each transaction.
Plus, Venmo makes money from consumers—those who pay for instant transfers or use a credit card to fund payments. And Venmo earns money from the Venmo credit card, both from interchange fees charged to merchants, and from interest and fees charged to cardholders.
Is Venmo Safe?
All internet-connected applications are vulnerable to security breaches. Therefore, Venmo and every other app that links directly to consumers' bank accounts must be held to the highest security standards.
Venmo has taken measures to protect its users from theft. However, your account still could be vulnerable if you share your password, lose your phone, or fall victim to a scam.
Venmo uses dataencryptiontechnology to protect users against unauthorized transactions while storing user information on servers in secure locations. The mobile payment service also gives users the option to log out of lost or stolen phones and to set uppersonal identification number (PIN)codes for mobile applications.
Unfortunately, hackers and scammers have been able to circumvent these safeguards. After gaining access to a user's account, hackers can easily transfer the user's Venmo balance to a new bank account. And by changing the user's linked email address, hackers can reroute a user's transaction notifications, leaving them in the dark until the bank finally notifies them of balance changes long after thefts occur.
Regulatory Investigation
In February 2021, the Consumer Financial Protection Bureau (CFPB) began investigating Venmo’s treatment of scam victims, following complaints that the payment app had been threatening to send debt collectors to their homes.
Venmo Pressured to Clean Up Its Act
Venmo has been criticized for its security, slow customer service responses to breaches, and failure to protect users' privacy. These complaints have highlighted the app's shortcomings, On the positive side, they have also forced the company to take measures to prevent future slip-ups and serve its customers better.
One notable settlement was reached in 2016, regarding a complaint from Texas Attorney General Ken Paxton accusing Venmo of negligent privacy, safety, and security practices. The settlement included a $175,000 payment to the state as well as reforms to these practices.
In February 2018, Venmo reached a settlement with the Federal Trade Commission (FTC) concerning the company's failure to disclose information to consumers about privacy settings. The FTC also found the company in violation of the Gramm-Leach-Bliley Act (GLBA) Safeguards Rule, which requires financial institutions to implement measures to protect the security, confidentiality, and integrity of customer information.
In 2021, Venmo ditched its controversial global feed, which publicly listed all transactions made by users who failed to change their default settings to private.
How to Protect Yourself With Venmo
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Users can take the following precautions to combat hacking:
- Never store large amounts of money in your Venmo balance.
- Immediately transfer Venmo transactions to linked bank accounts.
- Only use Venmo to exchange funds with people you know.
- Beware of scammers sending emails asking for your password or other personal information relating to your account. Venmo will never ask you for this information and urges users to send an email to [email protected] if confronted with suspicious activity.
- Change your setting to "private" to cloak your transaction history. Otherwise, other people, including strangers, will be able to view details of your transactions by clicking on your profile.
What Are the Risks of Using Venmo?
As with other online applications, there is a chance that your Venmo account could be hacked and your balance emptied. Ways to avoid becoming a victim of theft include making sure that you don't share your account information and password, logging out of your account when you're not using it, and refraining from storing large amounts of money on Venmo's platform. Also don't click on emails that might be phishing expeditions.
Is Venmo Insured by the Federal Deposit Insurance Corp. (FDIC)?
Unlike U.S. bank accounts, Venmo balances aren't insured by the Federal Deposit Insurance Corp. (FDIC). This means that if Venmo goes bust or somehow loses your money, you won't automatically be reimbursed. That suggests that Venmo users are better off keeping little or no money in the Venmo account and instead keeping it in the linked bank account where it can be tapped as necessary.
Is Venmo Free?
Venmo is free to use for its original function, which was to send and receive money from friends and associates. It's also free to use it to pay participating merchants, who now number in the millions. One word of caution: Don't use a linked credit card to pay anyone. Otherwise, you will be charged a 3% fee.
Can You Buy Cryptocurrencies on Venmo?
Yes, you can now buy digital currency on Venmo. However, Venmo isn't the only place where you can buy cryptocurrency, so be sure to compare its capabilities, choices, and pricing with those of other exchanges before opting to use this service.
The Bottom Line
Venmo has become one of the most popular peer-to-peer payment platforms, eventually branching out to merchant services and offering its own branded credit card.
While Venmo is easy to use, its users are still vulnerable to hacks and cyber theft. Use Venmo with the same caution that you would with any other online payment platform, including monitoring transactions and changing passwords regularly.
Venmo offers a free platform for transferring money between private parties, with options to fund transactions via credit card for a small fee. It's also free to pay for purchases in store using Venmo (but not by tapping into a credit card.)
As an expert in the field of digital payment systems and financial technology, I can confidently provide insights into the various concepts and features discussed in the article about Venmo.
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Venmo Overview:
- Venmo started as a free peer-to-peer (P2P) payment app for iPhones and Android phones.
- It allows users to make free P2P transactions and pay participating merchants.
- Venmo has expanded to offer additional services, including a debit card and credit card.
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Age Restrictions:
- Users must be 18 or older to have a Venmo account.
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How Venmo Works:
- Users download the Venmo app and link their accounts to a credit card, debit card, or checking account.
- Venmo acts as a middleman for P2P transactions, updating the balances of the sender and receiver within the Venmo platform.
- Venmo balances represent virtual ledgers until the money is transferred to the recipient's bank account.
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Sending or Requesting Money:
- Money can be sent or requested by entering the recipient's email address, phone number, or username.
- Instant Transfers incur a fee, while standard transfers are free.
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Venmo Fees:
- Opening a Venmo account is free, and there are no monthly fees.
- P2P transactions from a bank account or Venmo balance are free, but using a credit card incurs a 3% fee.
- Instant Transfers have a fee of 1.75%.
- The Venmo credit card has variable interest rates, and cash advances come with fees.
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Venmo Debit Card:
- The Venmo debit card is issued in partnership with Mastercard.
- ATM withdrawals may have fees depending on the network and location.
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Transaction Duration:
- P2P transactions between Venmo users are immediate.
- External bank transfers take three to five days, while Instant Transfers are quicker but come with a fee.
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Social Features:
- Venmo incorporates social network features, allowing users to add emojis to describe payments or requests.
- Users can personalize transactions, adding a playful touch.
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Venmo's Revenue Streams:
- Venmo generates revenue through per-transaction fees from merchants.
- Merchants pay a 1.9% fee plus 10 cents per transaction.
- The Pay-With-Venmo button in other apps also contributes to revenue.
- Consumer fees for instant transfers and credit card usage contribute to revenue.
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Security Measures:
- Venmo employs encryption technology to protect users against unauthorized transactions.
- Users can log out of lost or stolen phones and set up PIN codes for added security.
- Despite these measures, users should remain vigilant against scams and phishing attempts.
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Regulatory Investigation:
- The Consumer Financial Protection Bureau (CFPB) investigated Venmo's treatment of scam victims in 2021.
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Security Concerns and Settlements:
- Venmo has faced criticism for security issues, leading to settlements with authorities.
- Settlements include payments to states and reforms to privacy and security practices.
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Tips for User Protection:
- Users should avoid storing large amounts in their Venmo balance.
- Transactions should be transferred to linked bank accounts promptly.
- Users should only exchange funds with known individuals and be cautious of phishing attempts.
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Venmo Insurance:
- Venmo balances are not insured by the Federal Deposit Insurance Corp. (FDIC).
- Users are advised to keep minimal funds in their Venmo accounts.
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Cryptocurrency on Venmo:
- Venmo allows users to buy digital currency.
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Summary - The Bottom Line:
- Venmo, while popular, requires users to exercise caution due to potential security risks.
- It offers a free platform for P2P transactions but charges fees for certain services.
- Users should monitor transactions and passwords regularly for enhanced security.
In conclusion, Venmo has evolved into a versatile financial tool with both free and fee-based services, but users must be mindful of security considerations and fees associated with certain transactions.
