PayPal announced earnings yesterday and person-to-person (P2P)app Venmo was a star attraction. Pay Pal continues to engage with customers around P2P and transaction volumes continue to grow at incredible rates. CNBC reported:
Investors finally got what they were waiting for in PayPal‘s quarterly earnings: Good news about Venmo.
The peer-to-peer payments app, which PayPal acquired along with Braintree in 2012, has struggled to make money for its parent company. Wall Street analysts highlighted the app’s performance as a key metric to watch in Thursday’s earnings report.
Venmo didn’t disappoint. It had a breakout third quarter with payment volume surging 78 percent to a total $17 billion. That’s still a fraction of PayPal’s total $143 billion in volume for the quarter, which missed analysts’ expectations — but it’s encouraging, PayPal’s CEO says.
The next comments from the announcement require a little analysis:
“While it is still early, our monetization efforts appear to be reaching a tipping point,” CEO Dan Schulman said on a call with analysts Thursday. “I’m especially pleased with the strong overall momentum surrounding Venmo.”
Twenty four percent of Venmo users have now participated in what Schulman called a “monetizable action.” That number is up from 17 percent in the second quarter, and 13 percent in May of this year. In September alone, PayPal said it processed more than $1 billion in instant transfer volume on the Venmo platform.
A “monetize-able” action likely means one of two activities: 1) the consumer uses funds from a Venmo P2P transaction to make a purchase at a Pay with Venmo merchant. PayPal earns fees from the merchant for processing that transaction. Or, 2) the consumer needs to have a P2P transaction received within minutes and will pay 1% of the transaction amount for expedited delivery. This fee just rolled out as discussed here.
So now the question is whether consumers will use Venmo to buy and if speed is meaningful, especially in light of other free options. On the topic of Venmo purchases, I believe that it will be the same slow adoption that the industry is seeing will other mobile payment apps. Yes, consumers will use these apps, but the benefits aren’t great enough to make it a habit. Will consumers pay for a faster P2P transaction? Only occasionally. With slow Venmo transactions still available for free and other market solutions like Zelle offering real time transactions for free, PayPal will see only modest adoption. In the meantime, PayPal will continue to support a growing client base and when the market is finally ready to move, PayPal will be well positioned with a large and loyal customer base.
Overview by Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisor Group
