Over the last decade, Paypal has done an excellent job of bringing millennials and generation X young adults into its business systems. In particular, the introduction of one of their apps called Venmo in 2009 spurred a surge of younger people into their recurring customer base.
Venmo is a mobile app that allows individuals to send money to one another using their cellphones. To pay, a person must link up a checking account or debit card; a person can receive funds into their Venmo Wallet automatically, and to transfer those funds to a connected checking account only takes a few days.
This is a Massive Business
Last year, Paypal oversaw $17.6 billion in transactions that took place using their Venmo application, which was more than a 134% increase from the prior year. Transactions that involve cash-style options are free to complete, but many Venmo customers choose to pay using a credit card or other means which results in a small transaction fee.
As a result, Paypal is able to draw a huge amount of income from this app on a yearly basis due to a high volume of transactions, and the big banks aren’t happy about that.
For quite some time now, major banks like Bank of America, Wells Fargo, Fifth-Third Bank, and others have allowed for their customers to make account-to-account transfers amongst friends, but these institutions often charge fees for doing so. Now, they are changing their tactics.
How Banks are Trying to Take Back the Payments Market
As they attempt to regain a hold on the payments market, 19 major US banks are joining forces to build a website/app called Zelle. Zelle will allow individuals to send and receive payments for free just like Venmo allows, and it will also allow users to split bills amongst themselves like Payshare (also owned by Venmo) does.
Furthermore, Zelle is also going to allow individuals to transfer money to their bank accounts instantly as soon as they receive it in their Zelle account. This is a big step up from what Venmo can currently do, as outbound bank transfers can take anywhere from two to five days to complete right now.
How Paypal is Fighting to Keep Market Share
Paypal is moving as quickly as it can to get Venmo to where outbound bank transfers can be completed instantly. Right now, they are forming relationships with Mastercard and Visa to be able to process transactions over those debit card transaction systems, and Paypal spokesman John Criscoe says that Venmo users should be able to make instant transfers by mid-2017.
It is Paypal’s hope that if they move quickly enough they can keep current customers who are loyal to Venmo from switching to Zelle due to its better functionality.
Victor Notaro is an accomplished Corporate Banking Executive with a demonstrated record of success leading consultative and relationship management strategies in the financial services industry. Victor Notaro is skilled at building and managing high performing teams of professionals in commercial and corporate banking, fostering relationships with middle market and multi-billion dollar companies. Victor Notaro’s record reveals exceptional performance in the development of business capital strategy, with expertise spanning start-up of business units, leading YOY revenue growth, and producing sales in the millions of dollars. Victor Notaro is the Senior Vice President, Corporate Banking / MidCorporate Banking at Citizens Financial Group. Please follow him on Twitter and LinkedIn to learn more!