PayPal vs. Venmo: Differences & Which One To Choose?

PayPal and Venmo are two different financial firms. Each of them offers convenient features for its users, and as a result, they both have been widely used globally. Venmo is a late starter in the industry, but in the trend analysis section below, you will see that it has gained people’s interest continuously over the past years. One thing we first need to know is that they are not competitors by the way.

PayPal is a parent company of Venmo. Yes, PayPal owns Venmo. In this post, we will learn the major differences between the two companies. By knowing them, you can decide which one you want to use.

PayPal Owns Venmo

According to Wikipedia, Venmo was started by Andrew Kortina and Iqram Magdon-Ismail. They met each other when they were freshmen at the University of Pennsylvania. They both realized that the PoS (Point of Sale) software at that time is very inefficient and inconvenient thus saw a big potential for improvement. They devised an untraditional way – making a money payment on a mobile phone. The founders wanted an easier way to split payments such as movies, dinner, tickets, rent, and more.

In 2010, the firm was able to raise $1.2 million of seed money by PRE Ventures. In 2012, Venmo was acquired by Braintree for $26.2 million. In December 2013, Braintree was acquired by PayPal for $800 million. It was Braintree, not PayPal, that first acquired Venmo.

Since then, Venmo has cemented its position in the mobile payment sector. As envisioned by the founders, Venmo users can make a transfer using their mobile phone app. The Wikipedia source says that the firm handled $12 billion transactions in the first quarter of 2018. In January 2018, the firm launched an instant transfer feature that enables users to load funds into their debit cards within 30 minutes. That speed is in comparison with the bank’s transfer that takes normally 1 to 3 business days. The instant feature incurs a fee while the standard bank transfer doesn’t.

About PayPal

We learned about Venmo and the firm’s history. I believe most of us would know about PayPal. I use PayPal to receive funds from someone else and transfer money to my bank account. Almost all of the online financial companies like Venmo supports PayPal. The firm certainly is the giant player in the finance sector.

PayPal was initially named as Confinity in 1998. Confinity was founded by Max Levchin, Peter Thiel, and Luke Nosek in December that year. It was started as a security software company for handheld devices. The business didn’t go well, which made the firm pivot to a digital wallet business. This was a start of PayPal’s electronic payment system that was rolled out in 1999.

While I’m writing this piece, Tesla has become the biggest automaker in the world outranking Toyota. The firm’s share price is now over $1,200.

So, it might be timely to mention about Elon Musk and his history with PayPal. In 2000, Confinity was merged with X.com – an online banking company established by Elon Musk. He had an optimistic view of the future of the money transfer business. In October of the same year, he was replaced by Peter Thiel as CEO of X.com. In 2001, the firm’s name was changed to PayPal. In 2002, the firm went public. The company’s share was priced at $13. That stock price now is at $177 per share as of now.

Venmo’s Major Features

What major features did make Venmo stand out and lead to the acquisition by PayPal? Let’s see the major feature of Venmo.

Make and Share Payments

You can make payment to your friend or family who is also using Venmo. When the recipient is a Venmo user, paying the person is easy. When you create a Venmo account, you can apply for a Venmo debit card. When you make a payment using the card, the transaction appears on the Venmo app. You can choose a transaction to split the amount with your friends. Your shared payment is posted with the message you write like a social app. This allows you to remember important moments with your friends and family.

Online Purchase

When you purchase items or foods online, you can opt out with a Venmo option. Venmo points out that millions of websites support Venmo as a payment option through PayPal. With this feature, you can simply use your phone to buy your favorite items online.

Money Transfer

You can transfer money to your linked bank with a few clicks. Also, as mentioned, transferring money to someone on Venmo is simple and easy.

Sync with Your Phone Contact & Facebook

You can find someone on Venmo using your phone contacts or Facebook friend list. If the person you are looking for is registered in your phone contacts or is a Facebook friend, Venmo can automatically find that person.

Free Payments

People love free fee. When you make a purchase or send money using your Venmo balance, bank account, debit or prepaid card, Venmo does not charge you. Venmo applies 3% standard fee to credit cards only. You can receive funds and make a payment in other apps for free.

These are Venmo’s major features.

PayPal’s Major Features

PayPal also supports many of the features that Venmo has. Plus, PayPal has a good range of features for small and medium businesses and individual freelancers. You can send an invoice to someone on PayPal to receive money. The company offers business-friendly features such as:

  • Barcode scanning
  • Billing and invoicing
  • Cash management
  • Inventory tracking
  • Fraud detection
  • Invoice management and tracking
  • PoS integration
  • Sales tax management
  • Sales tracking
  • Transaction history and monitoring
  • And many more, according to GetApp

Fees Comparison

The two companies have different fee structures. Let’s first find out the fees of Venmo.

Venmo Fees

As a consumer, you can enjoy almost free services by Venmo. When you send money or make a payment using Venmo, if the transaction is funded with your Venmo balance, bank account, or a debit or prepaid card, you are exempted 3% fee. You will be charged the fee when you send money using a credit card.

According to this article about Venmo’s business model, the firm generates more revenue by charging merchants. PayPal owns Venmo. This means Venmo can access the huge merchant network of PayPal. In 2018, Uber and Uber Eats integrated Venmo into their apps. Users can pay using Venmo on the apps and split the bill as well. You can also use Venmo debit card at merchants. When you purchase items using the debit card, it withdraws funds from your Venmo balance, which is free for you but not for the merchant.

In those cases, Venmo charges merchants a 2.9% fee in addition to $0.30 transaction fee. The article about Venmo points out that it is higher-than-average rates for merchants, but because they can attract many Venmo users to their store, they are willing to pay the fees.

PayPal Fees

When you create a PayPal account or download the app, they don’t charge you any fee. PayPal listed the specific cases when a fee incurs.

  • As a merchant, when you receive funds from a purchase.
    • If the item was sold online in the U.S.
      • a fee of 2.9% of the transaction amount and $0.30 USD.
    • If the item was sold online outside the U.S.
      • a fee of 4.4% of the transaction amount and $0.30 USD.
  • When you transfer money from your PayPal account to your bank account using an eligible debit or prepaid card.
    • Standard transfer to linked bank account is free.
    • Instant transfer with an eligible linked debit card or bank account charges 1% of the amount transferred with a maximum fee of $10.

Trend Analysis: Venmo vs. PayPal

In this section, we will have a look at how people’s interest has changed over the past 5 years. By looking at the trends, we can understand which firm has maintained or attracted people’s interest during that period.

Interest Trend from Google Trends

When I research a product or a service, I often use Google Trends. It is an extremely helpful service by Google that gives you a historical Google search trend. The idea is that if a product or a company can maintain or can increase its search volume over many years, it supports the quality of the product. If a product is bad, people won’t show their interest and eventually will never search for the product anymore.

Since it can give you the historical search volumes, you can refer to the trend to measure people’s interest.

Venmo Trends

First, let’s have a look at the trends of Venmo from the globe. The trend line below shows the search volume over the 5 years. As you can see, it has a clear uptrend, which is a good sign for the business. It seems that Venmo has been able to attract people’s attention, and if the trend continues, even more people are likely to search about Venmo

PayPal Trends

Next, let’s have a look at the PayPal’s. The trend line below looks more stable. PayPal had already achieved a good level of people’s attention prior to 5 years ago. Since then, it seems that PayPal has been consistently searched by many people. This is also a good sign for a business and users.

Conclusion

We have learned the major differences between Venmo and PayPal, and the relations between the firms. Venmo was a rising company that has its focus on consumers while PayPal offers strong support to business customers. They both are great finance firms and I’m sure that you can gain benefit from them.

If you want more about Venmo, check these posts.