Cash­ing In

Under par­ent com­pany Paypal, the mil­len­nial-fo­cused peer-to-peer pay­ments app has got­ten se­ri­ous.

Fast Company - - Contents - By Ruth Reader

Four years after Paypal ac­quired Venmo, the peer-to-peer pay­ment app is get­ting se­ri­ous.

It started with a sim­ple dare: All Mike Lin­shi had to do was buy a cer­tain shirt from a store nearby and wear it.

The bet was of­fered up in the easy evening hours after a mu­sic and in­no­va­tion fes­ti­val in Brook­lyn two years ago. There was just some­thing so funny about the thought of Lin­shi in that par­tic­u­lar shirt that Iqram Mag­don-is­mail and An­drew Kortina, co­founders of the New York– based peer-to-peer pay­ment app Venmo, bet their col­league $50,000 he wouldn’t wear it. The sum was set high “just to shock him a lit­tle bit,” Mag­don-is­mail re­calls. And any­way, they had the cash: Venmo had been ac­quired for $26 mil­lion three years ear­lier by the pay­ment pro­ces­sor Brain­tree, which was then bought by Paypal for $800 mil­lion.

Of course the shirt was ob­tained and worn, and Mag­don-is­mail and Kortina were good as their word. They trans­ferred the money on the spot, with an ex­tra $50,000 go­ing to the Venmo en­gi­neer who raised their ac­count limits to make it pos­si­ble. The next day, after the haze of the pre­vi­ous night wore off, the money was re­turned.

This kind of story may waft around barstools in San Fran­cisco, where young founders can be more flush with cash than with a sense of what to do with it. But to Venmo par­ent com­pany Paypal, the in­ci­dent was grounds for an in­ves­ti­ga­tion. Three months after the fes­ti­val, Mag­don-is­mail, the then-pres­i­dent of Venmo, was sit­ting in front of Paypal’s com­pli­ance team, try­ing to ex­plain why he was ex­chang­ing tens of thou­sands of dol­lars with em­ploy­ees. Paypal even­tu­ally closed the case, but Venmo’s grow­ing pains lin­gered.

Mag­don-is­mail and Kortina, who met at the Univer­sity of Penn­syl­va­nia, launched Venmo in 2009 as a fee-free, dig­i­tal way to ferry money be­tween friends. The app pi­o­neered the idea of so­cial pay­ments by pub­lish­ing users’ trans­ac­tions and memos in an emoji-filled con­ver­sa­tional stream—cat­nip for mil­len­ni­als. Brain­tree founder and now Paypal COO Bill Ready says it was the “crazy ge­nius” of this stream— where you can see friends pay­ing one an­other for pret­zels and beer, room­mates ex­chang­ing money for util­i­ties and rent, and cou­ples divvy­ing up date-night ex­penses—that drew him to the app in 2012, de­spite the fact that it had only 3,000 users.

To­day, Venmo is the ser­vice to beat in the grow­ing peer-to-peer pay­ments space. It shut­tled nearly $18 bil­lion be­tween peo­ple last year— $5.6 bil­lion in the fi­nal quar­ter alone, up 126% from the pre­vi­ous year. (Though Venmo doesn’t re­lease user fig­ures, Verto An­a­lyt­ics es­ti­mates it has more than 7 mil­lion ac­tive monthly users, which still pales next to Paypal’s 197 mil­lion ac­counts.) The app’s growth is all the more re­mark­able for the fact that the prod­uct it­self has re­mained rel­a­tively un­changed since join­ing the Paypal fold in 2013. For al­though Venmo’s founders had a pre­scient un­der­stand­ing of the mil­len­nial mind-set, they knew lit­tle about the fi­nan­cial reg­u­la­tions that ap­plied to their prod­uct. For the past few years, Venmo has been con­sumed with turn­ing it­self from a move-fast-and-break-things kind of com­pany into some­thing more up­stand­ing—and sub­stan­tial.

As a pay­ments ser­vice, Venmo is legally re­quired to pre­vent money laun­der­ing and fraud, but the ser­vice launched with vir­tu­ally no reg­u­la­tory com­pli­ance built into it. It didn’t even ver­ify users ini­tially. Be­fore its ac­qui­si­tion by Brain­tree, Venmo found it­self play­ing whack-a-mole against fraud. Peo­ple would hook up stolen credit cards to the app and cash out en­tire lines of credit. Oth­ers hacked le­git­i­mate ac­counts. An­other ploy was to use Venmo to pay for pur­chases, and then pull the money back right after the item shipped. It was so easy for peo­ple to close out ac­counts that, Mag­don­is­mail re­calls, “we saw $200,000 dis­ap­pear in one night.”

Once it be­came part of Paypal, Venmo got to work, with chief op­er­at­ing of­fi­cer Mike Vaughan tak­ing on the ad­di­tional role of gen­eral man­ager in 2014. By plugging into Paypal’s com­pli­ance in­fras­truc­ture, the app be­gan track­ing and flag­ging po­ten­tially fraud­u­lent set­tle­ments. It added twofac­tor au­then­ti­ca­tion, and, over the past three years, has cre­ated its own tech­nol­ogy to en­sure that the plat­form isn’t be­ing used for il­licit ac­tiv­i­ties. “We have a unique chal­lenge that you might not have with nor­mal bank trans­fers or writ­ing a check,” says Vaughan.

Eight years after launch­ing, Venmo is only now ex­per­i­ment­ing with ways to gen­er­ate rev­enue. Last July, Paypal in­tro­duced a prod­uct that al­lows users to pay mer­chants via Venmo (the app takes a trans­ac­tion fee). Right now, the ser­vice ap­pears as a sim­ple tap-to-pay but­ton in­side 12 branded apps, in­clud­ing those of Munch­ery, White Cas­tle, and De­liv­ Venmo hopes to ex­pand to more busi­nesses in the com­ing months.

But Venmo’s tra­jec­tory isn’t likely to be lim­ited to a “buy” but­ton. Paypal has also sig­naled that it’s think­ing about how to lever­age Venmo’s so­cial stream for shop­ping. After all, if Venmo’s pas­sion­ate users are al­ready talk­ing about com­pa­nies and prod­ucts on the feed, why not use that to fa­cil­i­tate direct in­ter­ac­tions? “We’re try­ing to fig­ure out ways to bring con­sumers to their fa­vorite brands, apps, mer­chants,” says Vaughan. “Whether it’s [for] loy­alty, cus­tomer in­ter­ac­tion, or re­wards, or just brand en­gage­ment.”

Such am­bi­tions put Venmo—com­fort­ably niche for so many years—in ter­ri­tory sim­i­lar to Facebook, which has been build­ing out its own pay­ments ca­pa­bil­i­ties on Mes­sen­ger. If Venmo is to grow up, it may find it­self stand­ing along­side the big boys.

Il­lus­tra­tions by Danilo Agutoli

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