Will Venmo + Plastic = Profits?

Summary

WSJ Your Money Briefing – Episode Summary

Episode Title: Will Venmo + Plastic = Profits?
Release Date: April 22, 2019
Host: Charlie Turner (The Wall Street Journal)
Guest: Peter Rudiger (Wall Street Journal Reporter)
Length (excluding ads/outros): ~6 minutes

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Episode Overview

This episode explores Venmo's strategy to move toward profitability by launching a branded credit card. Charlie Turner and reporter Peter Rudiger discuss Venmo’s popularity, its ongoing financial challenges despite widespread adoption, previous efforts to generate revenue, and what a partnership with Synchrony Financial could mean for the platform's bottom line.

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Key Discussion Points and Insights

1. Venmo’s Current State and Market Position

• Venmo’s Popularity:

  • "Its brand name is used as a verb for sending someone money. Just Venmo me." – Peter Rudiger [03:11]
  • Estimated to have about 27 million users who will make a Venmo payment in 2019. [03:31]

• Challenges Despite Adoption:

  • Venmo doesn’t charge users for most transactions, leading to significant transaction costs for PayPal.
  • The money transfer business is expected to lose Venmo about $400 million this year. [03:47]

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2. Efforts to Generate Revenue

• Past and Present Initiatives:
  • Option to use Venmo at online or app-based retailers. [04:15]
  • Instant transfers to bank accounts for a 1% fee (otherwise, transfers take about three days). [04:15]
  • Debit card linked to Venmo balances, allowing direct spending with merchants paying a transaction fee. [04:18]

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3. The Venmo Credit Card Strategy

• Partnership in the Works:

  • Venmo is “close to reaching a deal with Synchrony Financial” to issue a Venmo credit card. [03:02]
  • The move aims to replicate revenue models familiar to other tech companies entering financial services.

• Why a Credit Card?:

  • Every credit card purchase earns Venmo a small merchant fee, which could become significant with enough volume.
  • Credit cards offer loyalty and rewards programs, appealing to Venmo’s young audience (“a lot of young people want to accrue credit card rewards and get rewarded for their spending…” – Peter Rudiger [04:53]).
  • Designed for users loyal to Venmo who may prefer credit card rewards over debit cards.

• Market Context:

  • Apple partnering with Goldman Sachs on its own card.
  • Amazon/American Express rolled out a business credit card.
  • Venmo’s parent, PayPal, already offers a 2% cashback card with Synchrony and has collaborated since 2004. [05:45]

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4. Rollout Timetable and Next Steps

• Expected Timeline:
  • Hoping to announce the Venmo credit card by end of the year (2019).
  • "There’s still some moving pieces. No contracts have been signed as far as we know..." – Peter Rudiger [05:53]
  • Apple Card launch generating urgency for Venmo to move quickly.

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Notable Quotes & Memorable Moments

• On Venmo’s Cultural Impact:

  • "Its brand name is used as a verb for sending someone money. Just Venmo me."
    – Peter Rudiger [03:11]

• On the Business Challenge:

  • "But it costs money to actually move that money for PayPal. It loses money on each one of those transactions and it loses quite a bit of money… will lose Venmo about $400 million this year."
    – Peter Rudiger [03:47]

• On the New Credit Card Approach:

  • “Credit cards are very popular among tech companies lately. Apple recently said it was going to launch a credit card with Goldman Sachs...”
    – Peter Rudiger [04:53]
  • “This is kind of aimed at the Venmo audience that doesn’t want a debit card, they want rewards, but is loyal enough to Venmo that they’ll consider a Venmo credit card.”
    – Peter Rudiger [05:11]

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Timestamps for Major Segments

• [03:02] – Introduction of Venmo's partnership with Synchrony Financial.
• [03:31] – Venmo user base statistics.
• [03:47] – Discussion of how Venmo loses money on its core business.
• [04:15] – Overview of Venmo’s current and past monetization attempts.
• [04:53] – Explanation of the credit card's revenue potential and target audience.
• [05:45] – Context on PayPal’s existing partnership with Synchrony.
• [05:53] – Timeline for the expected credit card announcement.

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Conclusion

This episode offers a concise, informative look into Venmo’s struggle for profitability and its latest initiative–the launch of a branded credit card in partnership with Synchrony Financial. As digital payment companies seek sustainable revenue streams, Venmo’s move mirrors broader shifts in tech toward integrating traditional banking and rewards-driven credit products. Listeners gain insight into both the competitive landscape and the challenges of translating ubiquity into profit.

Transcript

[Podcast Host]

This episode is brought to you by Charles Schwab. Decisions made in Washington can affect your portfolio every day, but what policy changes should investors be watching? Washington Wise is an original podcast from Charles Schwab that unpacks the stories making news in Washington right now and how they may affect your finances and portfolio. [e-mail] WashingtonWise.

[Charlie Turner]

With your money briefing. I'm Charlie Turner in New York for the Wall Street Journal. Mobile payments app Venmo is going old school to try to turn a profit. We'll have more in just a moment. First, here are some money headlines. Consumer focused tech companies like Snap, Pinterest and Lyft may have more cachet, but the Wall Street Journal says tech startups that cater to businesses are really hot with investors. For starters, Zoom Video, which makes video conferencing software for companies, solidly outperformed online pinboard Pinterest when the two went public this week. And according to an analysis of Deal Logic data by the Journal, shares of business software companies that have gone public since 2016 have performed much better than consumer tech companies going public over the same time period. The reason for this, according to the Journal, is that consumer tech companies are dominated by players like Apple, Amazon and Facebook, which are better at fending off upstart rivals. The existing players in business technology, including Microsoft, IBM and Oracle, have less of a stranglehold on their markets. And check out the Wall Street Journal's Hurt on the street column on golf by Lawrence Silva Laughlin. Tiger woods fifth Masters title was met with hopes his comeback would revive the sport and help boost shares of companies like Callaway Golf and Titleist owner Acushnet Holdings. But golf has problems that not even Tiger woods can help overcome. In fact, the 43 year old woods may be part of the problem, and that's one of age demographic demographics. The average Professional Golfers association watcher in 2016 was 65 years old, much older than for other sports. Another problem is that younger generations aren't playing golf, so fewer people are interested. One study found that the number of golfers aged 18 to 44 fell by about 1/3 in the 10 years to 2015. That's led to hundreds of golf courses closing over the same period. Still ahead, Venmo is near a deal to offer a branded credit card. Like many relatively new tech companies, Venmo is popular but not profitable. So the digital payments company is going old school with a plan in the works to offer a Venmo branded credit card. Venmo is not the first company to explore the option of a credit card alliance. Joining us with more on this is Wall Street Journal reporter Peter Rudiger. Peter, for those who don't use Venmo, it's a money transfer smartphone app. Which company is it close to partnering with for the Venmo card?

[Peter Rudiger]

Right. So Venmo is a money transfer app. It's owned by PayPal, which a lot of users might have heard of. But if you're not one of the young millennials that Venmo covets, you might not know that it's pretty popular. Its brand name is used as a verb for sending someone money. Just Venmo me. It is close to reaching a deal with Synchrony Financial, which is a credit card issuer, to issue its own Venmo credit card.

[Charlie Turner]

Okay. As we've both mentioned, Venmo has been widely adopted. How many people use the app approximately at this point?

[Peter Rudiger]

So PayPal doesn't disclose that, but the best estimates we have from outside researchers are about 27 million people use Venmo and they'll make a Venmo payment this year.

[Charlie Turner]

Right. And that's a lot of people using the app, I assume, using it a lot of times. Why is it losing money?

[Peter Rudiger]

So most of the time Venmo doesn't charge you to use it. It's a free service. I can send you money and they won't charge me a fee as long as I connect my Venmo account, my bank account, or a debit card. But it costs money to actually move that money for PayPal. It loses money on each one of those transactions and it loses quite a bit of money. There's analyst estimates out there that just that part of the business, the money transfer business, will lose Venmo about $400 million this year.

[Charlie Turner]

Has it tried other ways to raise money in advance of this credit card partnership announcement?

[Peter Rudiger]

It has. The credit card announcement is the latest in a series of revenue generating moves that Venmo has made. It's started out giving you the option to use Venmo at the checkout, at online retailers or in apps. It lets you send money instantly to your bank account if you want to pay a small 1% fee. Usually it takes about three days unless you pay that fee for money to move from Venmo to your bank account. And it recently last year rolled out a debit card tied to your Venmo balances. You can kind of swipe that and it would take money directly from your Venmo balance to the retailer and the retailer would pay a small fee for that. Option.

[Charlie Turner]

Peter, tell us specifically how a credit card alliance could help Venmo become profitable.

[Peter Rudiger]

Credit cards are very popular among tech companies lately. Apple recently said it was going to launch a credit card with Goldman Sachs. Amazon and American Express rolled out a small business credit card last year. The economics are similar to the debit card in that whenever you swipe that Venmo credit card at a merchant, Venmo would get a small fee from the merchant for whatever you buy on it. Over enough purchases, that could be some pretty big money in today's age. A lot of young people want to accrue credit card rewards and get rewarded for their spending, so they may not use a debit card. This is kind of aimed at the Venmo audience that doesn't want a debit card, they want rewards, but is loyal enough to Venmo that they'll consider a Venmo credit card.

[Charlie Turner]

As you said, Venmo is jumping into a crowded field. There are other tech companies that have partnered with credit card companies, including Apple. Venmo's parent, PayPal already offers its own brand branded credit cards through synchrony. Isn't that true?

[Peter Rudiger]

That's right, yeah. PayPal has a 2% cashback card with Synchrony. It's had synchrony credit cards since 2004.

[Charlie Turner]

Any timetable on this or does nobody know?

[Peter Rudiger]

They're hoping to announce it by the end of the year. There's still some moving pieces. No contracts have been signed as far as we know, so it could take some time. But given the interest around the Apple card, I think they're motivated to get this done sooner rather than later.

[Charlie Turner]

Wall Street Journal reporter Peter Rudiger joining us in the studio. Thanks, Peter.

[Peter Rudiger]

Thanks for having me.

[Charlie Turner]

And that's your money briefing. I'm Charlie Turner in New York for the Wall Street Journal.

[Podcast Host]

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