Third-party person to person (P2P) applications have become popular with millions of users, especially those in the younger demographic. Cash and checks are essentially non-existent, and users prefer a digital-first method to make payments.
Among the many P2P options available to users, two stand out – Venmo and Zelle.
While they technically provide the same service – sending payments to anyone else in the world at no cost – Venmo and Zelle have important differences that are important to understand.
Venmo is the most popular P2P transfer application in the world. In Q2 2017, Venmo processed $8bn of transaction volume, representing 103% growth over the previous quarter . The application is extremely popular with millennials and “Venmo” is frequently used as a verb – “Just Venmo me” or “I’ll Venmo you later” have become second-nature to many people.
Venmo is a mobile-first application and charges no fees if a user is making payments using debit cards, prepaid cards or directly through their bank account. If using a credit card, Venmo charges a 3% transaction fee.
Venmo also acts as a virtual bank account – users hold a balance and often utilize Venmo as a virtual checking account. When a payment is received through Venmo, it is not immediately transferred to a user’s bank account but instead stored in their “Venmo Balance”. Users then have the option to keep that money in their Venmo balance or transfer it to their primary bank account. If they keep the money in Venmo, the next time a payment is made, it is taken from their balance. It is fairly common to see users hold a balance in Venmo, due to frequent use of the application.
Lastly, Venmo incorporates a social component in its product. As long as the user permits sharing, all friends of the payee and payer can see what the transaction description is. Similar to a Facebook feed, others can comment or “like” these transactions. Venmo has taken a very private experience – the exchange of money – and found success in making this shareable and engaging.
Naturally, given Venmo’s success, mega-banks have felt an insane amount of pressure to develop a competing product and ultimately settled on Zelle. As far as core functionality goes – the goal is still to provide a free and digital way to transfer money.
Zelle aims to capitalize of some of the weaknesses users may see with Venmo’s product: non-instant transfer to bank accounts, a separate application, and potentially weak security. Zelle’s partners include the largest banks and credit unions in the country, and the service is currently live with 11 financial institutions .
23 other financial institutions are expected to launch the platform over the next year. In addition, Zelle plans to work with payment processors to expand into the broader regional and community financial institution market.
Lastly, Zelle recently annouced the launch of its standalone mobile application - an even more direct way to attract current Venmo users.