In a not so surprising move, peer-to-peer (P2P) payment app Venmo is beta-testing a physical debit card with a handful of its app users. The debit card will allow users to make payments on transactions in physical stores as well as online merchants, using the funds from their Venmo balance. It will also include a mobile payment feature that works like Apple Pay at retailers that accept PayPal.
It’s not so surprising because Venmo is actually playing catch up with P2P payment rival Square Cash, which launched a debit card in July. Venmo has not announced a launch date for its Visa debit card, which is issued by Metropolitan Commercial Bank through Shift Financial.
How a Debit Card Works for Venmo Users
The appeal of a debit card issued by Venmo and other (P2P) payment companies is the convenience factor. Users will be able use their balances to pay for purchases without having to transfer the money to their bank account. The advantage for users is they don’t have to wait an extra business day or two for the funds to become available after transferring them to their bank. Venmo will still require users to designate their bank account as a backup reload source should their Venmo balance not be enough to cover a purchase.
Venmo started testing the card in June and recently started to invite its regular (P2P) payment users to participate in the beta program. Users are invited through a prompt that appears on their Venmo feed when they access the app. They can sign up for free and start using their card immediately for in-store and online purchases. Venmo says it will make a determination on a more widespread release after they have had more time to gather sufficient data on its use.
So far, the only complaint about the new debit card has been its appearance. For whatever reason, Venmo has adorned the card with a picture of a ball of pizza dough. When compared to Square’s slick, all-black card that can be customized with a design of the user’s choice, it makes one wonder what Venmo is thinking. After all, for its target market, the discerning millennial generation, appearances do matter. After receiving feedback on the card’s appearance, Venmo has assured the public that the current design is just being used in the beta phase.
Major Source of Revenue
Although the benefits to users are negligible, the move by Venmo to add a debit card is essential if it is to remain competitive in the fast-growing P2P payments space. It is also an opportunity for Venmo’s parent company, PayPal, to increase its revenues through interchange fees. Interchange fees are charged by card issuers on each transaction. Currently, Venmo’s payment service is free to users. Interchange fees, which totaled more than $18 billion in 2015, can be a significant source of revenue for a card issuer. PayPal charges a flat rate of 2.9 percent plus $0.30 per transaction on its current debit card.
Is Venmo the Bank of the Future for Millennials?
The money transfer space is getting very crowded, especially with big players such as Apple entering the fray. Apple has announced its own money-transfer service that will also include a virtual payment card. The addition of a debit card is but one more way companies like Venmo are inserting themselves into the financial lives of their users.
Although mobile-based, bank-like services hold a certain appeal for millennials who thrive on their convenience; they still fall short in providing the full range of banking services most people need. The big banks are making their move with the introduction of Zelle, a payment service that does link to checking and savings accounts and offers a debit card along with virtual payments. With the support of 30 banks behind it, Zelle could become the most formidable competition for current leaders Venmo and Square.