Venmo continue to shine for PayPal (PYPL)

BI Intelligence

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Venmo, PayPal's stand-alone peer-to-peer (P2P) payment offering, posted another exceptional quarter, according to its earnings results. 

The service's users made $8 billion in transactions in Q2, which marks a 103% annual growth rate and represents Venmo’s 16th consecutive quarter of triple-digit growth. 

Venmo is an exceptional growth driver for PayPal, but that doesn't come without drawbacks.

• It’s becoming an increasingly large portion of TPV. Venmo itself comprises 7.5% of PayPal’s total payment volume (TPV), up from prior quarters. When including PayPal’s other P2P payment offerings, that number ticks up to 21%, according to the earnings call. These users are driving engagement — PayPal noted that adding incremental services that a customer uses leads to a near doubling of that customer’s total lifetime value.
• But that’s pulling from the firm’s earnings. As it currently stands, P2P is largely not monetized — the majority of customers don’t pay fees on these transactions, but PayPal does, to issuers and banks, which means they come at a loss. That’s impacting the firm overall as P2P scales — PayPal noted that 75% of the minor drop it saw in take rate in Q2 was a direct result of rising P2P usage.

As competition in the space increases, Venmo needs to find ways to scale, but it has to monetize at the same time. New entrants to the P2P space, like bank-owned Zelle and the forthcoming proprietary Apple offering, could threaten Venmo and PayPal’s current P2P dominance. To stay on top, Venmo needs to scale into new customer segments — and then make money off of those new users at the same time. So far, the firm is making headway in its efforts to do just that, recently launching the ability to pay with Venmo both in-store and in-app at merchants that accept PayPal, and announcing plans to extend that to “millions” of merchants by the end of the year. If Venmo can do that with success, it’s poised to extend its dominance while helping PayPal achieve its growth targets.

BI Intelligence, Business Insider's premium research service, has compiled a detailed report on mobile P2P payments that:

• Forecasts the growth of the P2P market, and what portion of that will come from mobile channels, through 2021.
• Explains the factors driving that growth and details why it will come from increased usage, not increased spend per user.
• Evaluates why mobile P2P isn’t profitable for companies, and details several cases of attempts to monetize.
• Assesses which of these strategies could be most successful, and what companies need to leverage to succeed in the space.
• Provides context from other markets to explain shifting trends.

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