PayPal Holdings Inc. (PYPL) and Venmo (a subsidiary of PayPal) are two huge names in the digital wallet game. PayPal is the long-standing, trusted payment service that people were introduced to when eBay (EBAY) was the place to buy things on the Internet, and PayPal was the best method to pay. Venmo, the new digital wallet, has become so popular among Millennials that the verb “to Venmo” has been coined.
A Condensed History of Digital Wallets
The first widely-known and -used digital wallet was PayPal. PayPal was founded in 1998, went public in 2002 and was quickly purchased by eBay. The site grew and by the time PayPal was spun-off in 2015, it had become a huge moneymaker for the auction site. (For more, see: 3 Things You Should Know About PayPal’s IPO.)
In 2009, Andrew Kortina and Iqram Magdon-Ismail found themselves needing a way to quickly and easily transfer money to one another. Aiming to provide the convenience of cash without the hassle of carrying money around, Venmo was born. In 2012, Venmo was bought by Braintree, and in 2013 Braintree was acquired by PayPal.
Why Venmo Is Different
Venmo is partly a digital wallet, partly a social media feed. The app asks for comments on every transaction and these comments are posted, newsfeed-style, for friends to browse. People use this comment box to post amusing stories and inside jokes. Venmo adds an element of fun to paying a friend back for dinner last night.
And that’s the real key to Venmo’s success: the impersonal, private transacting that happens on PayPal has been replaced with a digital wallet that is used mostly to pay friends. In fact, Venmo’s website even explicitly states that the service is “designed for payments between friends and people who trust each other.” With a system that is designed to emulate cash payments, transfers between Venmo accounts are instantaneous and cannot be undone: paying the wrong person means asking nicely that they return your money and hoping they do. (For more, see: How Safe Is Venmo and Why Is It Free?)
Comparison of Venmo and Paypal
Comparing Venmo and PayPal is tricky. While both of the apps are used to facilitate transactions and to easily and securely transfer money between bank accounts, PayPal has diversified into other financial products and is beginning to resemble a bank more than a payment app.
Today, PayPal not only offers payment services but it also dabbles in offering financing for large purchases, extends lines of credit and provides customers with debit MasterCard Inc. (MA), which use PayPal balances to pay for things in a brick-and-mortar store or to withdraw cash. With PayPal being so widely known, there are stores throughout the world which will accept PayPal payments for goods or services; some even accept contactless PayPal payments.
Venmo, on the other hand, is really good at what it does. It replaces cash when you owe a friend money. You can’t pay Netflix Inc. (NFLX) with Venmo but you can pay your roommate your half of the Netflix bill.
The final element of comparison is cost. Venmo is, shockingly, free to use. Credit card payments are subject to the 3% transaction fee that the card company charges, but debit card payments and transfers from a user’s balance cost nothing. PayPal charges 2.9% + $0.30 for payments from debit and credit cards but offers free transfers from PayPal balances. (For more, see: Venmo: Its Business Model and Competition.)
The Bottom Line
Comparisons of Venmo and PayPal often conclude that Venmo is the superior service because of its ease of use. While that may be true, depending on the features demanded or the payment amount, PayPal could still be of more use than Venmo.