Will Venmo help future-proof the Paypal Business Model?
Or is it a network whose advantage will be eroded by other competitors?
We look into the Business Model + Analytics to form a view on what the future surrounding Venmo looks like in relation to Paypal’s core business model.
Venmo Business Model
“Venmo me”
It has become a common phrase in the U.S. market between Venmo users.
Started in 2010 as a ‘social payment startup’ with a $1.2 million seed round, the company was acquired by Braintree in 2012 for $26.2 million, before Braintree was subsequently acquired by Paypal in 2015 for $800 million.
7 years following the acquisition, the payments network Venmo is processing more than $500 billion in TPV annually, and leading the competition – including Cash App and Zelle – in terms of volume.

In the same way that Cash App is a phenomena in the southern U.S., especially among individuals in underbanked and unbanked communities who use it as their primary bank account, Venmo has built its own cult-like following in the other half of the country, with approximately half of its users being millennials aged 25 – 34.
Google Search Trends – Venmo vs. Cash App

In the 2nd Quarter of 2022, volume on Venmo surged to $61 billion USD, driven by ~90 million Active Users. P2P (Peer-to-Peer) Transactions represented 27% of Paypal’s TPV, with Venmo accounting for ~20% of Paypal’s TPV. The average transaction size of Venmo is ~$60.
How does Venmo make money?
Payment Processing on the transactions that flow through the network. Venmo is principally used as a P2P Payments service between users – there is no transaction fee for consumers to transfer within the network.
For merchant transactions, Venmo takes 1.9% of the transaction + $0.10 from the merchant (interchange fees).
Parent company Paypal is a Payment Processor operating in the very competitive, but lucrative B2C Payments market. Payment processing fees for Merchant Acquirers like Paypal typically vary between 100 – 130 bps on credit card transactions.
In Paypal’s case, they earn ~2% in Net Revenue (Total Take Rate) for every $1 they process in TPV (Total Payment Volume); however, this transaction % only is taken for merchant transactions.

Venmo Commerce volume grew 250% YoY (year over year) in the 2nd quarter of 2022, indicating that this is the area where Venmo really begins to grow as a business and generate revenue within the Paypal business model.

The strategy for Paypal with Venmo overall is linked to the checkout. Last year they inked a deal with Amazon that allows Venmo users to checkout using their Venmo account for any transaction on Amazon. Venmo also has a network of more than 2 million merchants.
While there is no payment processing fee to move money between users on the network, Venmo offers several layers of ‘banking services’ on its different types of cards, very similar to what Block does with Cash App. Below is a summary of some of their core User Fees:
- Instant Transfers – to withdraw money from a Venmo account to bank account or credit card is 1.75% (min. $0.25, max $25)
- Buying Crypto – 1.8% between $200 – $1,000, 1.5% over $1,000, min. fee of $0.25
Venmo’s debit banking accounts are FDIC certified just as any other bank account in the U.S. is. There are no fees to open an account; however, they also offer a Venmo Credit Card via Visa and Synchrony Bank. In addition to fees for credit card on debt (16.74 – 25.74% APR), merchant transactions paid with credit cards generate significantly higher interchange fees than debit cards.
Three tiers of cashback rewards are offered for purchase on the Venmo Credit Card, with the ability to also get cashback in crypto:
- Earn up to 3% on your top spend category
- Earn up to 2% on your second top spend category
- Earn 1% on all other eligible purchases and on person-to-person transactions
The credit card is a relatively new product for Venmo, first launched in October 2020. They are available to all Venmo users, but it is unclear what % of users use the credit card.
Nevertheless, when looking at the strategy between merchants and everyday users, a credit card adds a lot more in potential revenue to the company’s future potential than simply having a debit card.
Overall, we can see that the business model for Venmo – now that they have a network of ~90 million users across the U.S. – is to begin to generate more merchant transactions where they make their payment processing margin.
Venmo Business Model Canvas

Venmo Value Proposition
P2P (Peer-to-Peer) Payments network offering a full-suite of banking services to users across the U.S.
- No Fee peer-to-peer money transfers
- Banking Services – instant transfers, credit cards, buy/sell cryptocurrency
- Seamless Checkout – with 2 million+ Venmo merchants, plus Amazon
Venmo Business Model Analytics
The challenge when looking at the Venmo Business Model Analytics – Behavioural, Channel, Retention – is that unlike Cash App and Block, Paypal doesn’t break out a lot of the specific Venmo user economic numbers in their investor updates.
What we do know is that Venmo operates much more like a social network than a typical bank. Yet they are competing directly not just with Block and Cash App, but with the Big U.S. Banks who own Zelle.
Typically, the Big Banks have much higher ARPU (Average Revenue Per User) and LTV (Lifetime Value) numbers compared to upstart Fintechs. In this case, we can see that Zelle’s average transaction size is exponentially higher than Venmo’s, which means much more revenue per transaction.
And Zelle’s average transaction size for Q4 2021 was $272, indicating more small business payments
Insider Intelligence
On the flipside, we know that Block’s Cash App acquires users for $10 (Customer Acquisition Cost).
As Venmo is currently offering a $10 referral bonus to its users, we can assume that Cash App’s CAC serves as a proxy. A lower CAC can partially or completely offset the lower ARPU, depending on how frequently users transact. ARK Investments estimated it around 3 – 4 per month back in 2020.

Furthermore, we know that for Cash App, retention increases 31% for users that have more than 4 friends. The ‘social payments’ strategy – from both a product and marketing perspective – is to keep users active and engaged on Venmo for the long-term.

What we know specifically from Paypal’s most recent earnings call, is that the payments network demonstrates power laws based around the Pareto Principle described in Behavioural Analytics.
That said, almost 80% of our volume is driven by 30% of our active accounts, which is why our primary focus is on driving engagement across our base.
Fool – Paypal Q2 ’22 Earnings Call

It is these ‘power users’ where Paypal is likely to focus Venmo in the future. Many businesses, historically, have reached the next level by learning from and further monetizing around their power users by giving them the tools and features that they like.
Churn remains one of the biggest issues when there is so much competition in the space, especially between Venmo, Cash App, and Zelle. Not only do users sometimes churn, but others who may defined as ‘Active’ likely have one or two of the other apps on their phones, which will eat into revenues.
That’s why focusing on around power users will likely be the key for Venmo and Paypal.
Future Focus – Brand Differentiation
Venmo skews much more towards the idea of a ‘digital wallet’ than Cash App. While many would consider it cooler than Zelle, it has less edginess and notoriety than Cash App.
Paypal itself has shrinking margins and is seeing increased competition for its major payment processing business model.
A year ago, when Paypal’s share price was 3-4X what it was today, the concept of the ‘super app’ in finance was the main talking point during investor days. Since that time, not only has Paypal seen its share price lambasted, but broader consumer sentiment around banking and financial services has changed significantly.
Do consumers in the North American market want a super app?
Maybe and maybe not. Certainly not a Paypal app.
Stay Popular with Gen Z
While still fairly vanilla, Venmo has enough market share and brand equity among younger consumers to help it become a mainstream financial services app in the future. We see them launching credit cards and other features that make Venmo bankable, both for consumers and businesses.
But if they don’t differentiate in core categories, much like Block is doing across its product portfolio, the risk is that Venmo remains relevant for P2P payments but fails to achieve significant revenue growth and future profitability. Paypal needs Venmo’s users to pay for their goods on a daily basis, not simply split rent money between friends.
Cash App is seeing huge growth in the Southern U.S. among many of the underbanked and unbanked communities. Rappers and counterculture musicians rap about Cash App and the company’s marketing is all about being a bank without being a bank.
Many Cash App users use it as their primary bank account, and since the company has gone all-in Bitcoin (vs. ‘crypto’) it is notoriously good as a Bitcoin wallet.
Venmo is none of the above. The era of the ‘social network’ as a whole is dying, as concerns about privacy persist and a new generation (Gen Z) looks for entirely new ways of engaging on community networks compared to the past.
To make Venmo work will probably require a differentiation strategy away from Paypal, in the same Block has done between Square and Cash App. Despite the challenges, Venmo seems to have the upper hand with GenZ and that’s the demographic who drive ‘the future’ of everything these days.
Overall, Venmo is an amazing case study in strategy in the financial services industry. Venmo leads the way in a number of categories among P2P Payments apps across the U.S., but ongoing questions remain (and will remain) about how well they can monetize it amid rising competition and shifting consumer sentiment.
Are they the future of Paypal’s business? Very likely. Are they the future of financial services? Unlikely.
More Venmo Business Model Posts
Business Model Canvas – Payments