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When PayPal announced Q1 2017 results, Venmo, the Braintree-operated peer-to-peer (P2P) payments platform, remained a highlight as growth continued to skyrocket.
Venmo processed $6.8 billion in payments in Q1 2017, an increase of 114% over the previous year and the service’s 15th consecutive quarter of doubling growth. Venmo added $900 million in volume sequentially — a vast growth rate.
That means it’s becoming a larger overall share of PayPal’s business. Venmo volume is still just under 7% of the firm’s quarterly total payment volume (TPV), but that’s up by two percentage points sequentially. As P2P payments become more popular and commonplace, especially among Venmo’s target millennial audience, it’ll eat into that further.
Now, Venmo has to prove that it's as effective at generating revenue as it is at attracting users. It’s widely believed that Venmo holds the largest market share of any mobile or digital P2P platform, particularly among millennials, making it a vast acquisition funnel for PayPal. But that comes at a cost, because for the majority of users, Venmo is free, but PayPal pays banks a per-transaction fee. As Venmo has scaled, that’s eaten into PayPal’s take rate, and as it gets bigger, it’ll become more of a problem.
This year is Venmo’s time to start down that path. Pay With Venmo, a buy button that allows users to pay in various apps with Venmo, generates revenue by charging merchants a per-transaction fee, and has been a proven engagement generator for PayPal. It’s currently live with a small number of merchants, but the firm has improved integration capabilities, and now, any merchant that currently accepts PayPal will easily be able to integrate it. That could scale the service to “millions” of US merchants this year, ultimately growing its reach and helping Venmo on the path to effective monetization. PayPal doesn’t expect it to make a material difference in 2017, but in 2018, the firm could see major gains.
Peer-to-peer (P2P) payments, defined as informal payments made from one person to another, have long been a prominent feature of the payments industry.
That’s because individuals transfer funds to each other on a regular basis, whether it's to make a recurring payment, reimburse a friend, or split a dinner bill.
Cash and checks have historically dominated the P2P ecosystem, and they’re still a popular tool. But as smartphones become a primary computing device, top digital platforms, like Venmo and Google Wallet, have enabled customers to turn away from cash and make those payments digitally with ease. Over the next few years, though overall P2P spend will remain constant, a shift to mobile payments across the board and increased spending power from the digital-savvy younger generation will cause the mobile P2P industry to skyrocket.
That poses a problem for firms providing these services, though. Historically, most of these players have taken on mobile P2P at a loss because it’s a low-friction way to onboard users and won’t catch on unless it’s free, or largely free, to consumers. But as it becomes more popular and starts to eat into these firms’ traditional streams of revenue, finding ways to monetize is increasingly important. That could mean moving P2P functionality into more profitable environments, leveraging existing networks of friends to encourage spending, or offering value-added services at a nominal fee.
Jaime Toplin, research analyst for BI Intelligence, Business Insider's premium research service, has compiled a detailed report on mobile P2P payments that examines what’s driving this shift to mobile P2P and explains why companies need to find a way to capitalize on it quickly. It discusses how firms can use the tools they have to gain in the P2P space, details several cases, and evaluates which strategies might be the most effective in monetizing these platforms.
Here are some key takeaways from the report:
Consumers still want mobile P2P services, and they’re turning to them. Individuals pay their peers on a regular basis, and as smartphones are increasingly used as computing devices, these consumers look to such services for fast and easy ways to pay.
Monetizing P2P is more important than ever. Initially, P2P was a valuable onboarding tool for companies, and when it was still a small segment, taking it on at little value or a loss didn’t have major implications. But as volume grows and user bases scale fast, finding ways to monetize quickly should be a priority for firms looking to stay ahead.
New technology could put some apps ahead of their peers. P2P continues to rely on networks, especially for informal, social transactions. But rather than having a large network, it’s becoming important for firms to understand their user bases and the networks within them. This means that chat apps, and leveraging bot and AI technology, may offer a distinct advantage.
In full, the report:
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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