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8 Ways Venmo Makes Money Off You

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Did you know Venmo comes from the Latin word vendreWhich means “to sell” – or that it was once a music start-up where you could text bands to receive MP3s via email?

However those details, interesting as they may be, are not what we will be discussing today. Instead, we’ll look at other sides of Venmo that can save you big bucks of money as you continue to use the app.

While Venmo may seem like a free service, it can be very expensive if you don’t understand how it works as a business. So, how exactly does Venmo make money from its customers? let’s find out.

What is Venmo?

Founded in 2009 by Andrew Cortina and Ikram Magdan-Ismail, Venmo is a leading US mobile payments app. It allows people aged 18 and above to send money to each other for free. You can instantly transfer money to friends, family or businesses at the touch of a button with no transaction costs, directly from your Android or Apple smartphone.

Venmo also has integrated social features. For example, users can add friends who also use the app and see (depending on their privacy settings) details about their transactions, such as time stamps and details. You can also exchange emojis on Venmo when making or requesting a payment, which helps make the payment process feel more lighthearted.

The social element of Venmo, in combination with its user-friendly nature, made it an instant hit, especially with the younger population. After a series of acquisitions in 2012 and 2013, PayPal acquired Venmo. It has over 70 million users and processes approximately $230 billion in annual payment volume.

How does Venmo work?

Anyone who wants to send or receive money using Venmo starts by downloading the Venmo app. After signing up, you can link your new account with a debit card, credit card or checking account and start adding friends and exchanging money right away.

Want to keep cash in your Venmo account like a wallet? You can do this too! But it’s not necessary—many people transfer funds directly from their debit card, credit card, or bank account.

Users can also request a Venmo debit card. With the growing number of businesses accepting Venmo payments, people can buy products and services connected to the app, as expected.

Venmo users can use the app to cash checks after verifying their identity, purchase products using an in-store QR code, and receive wages via direct deposit to their Venmo account. In addition, you can buy, sell, and hold Bitcoin, Ethereum, Litecoin, and Bitcoin Cash. Unfortunately, at this time, it is not possible to make purchases with crypto in your Venmo account.

How does Venmo make money?

Now that we know a little bit about Venmo, let’s dive into eight ways Venmo makes money. Keep these sources of income in mind while using this money earning app. Then, whether you’re an individual or a business owner, you can use this knowledge to reduce unnecessary Venmo expenses.

1. Credit card purchases

As we’ve seen, you can send money, receive money, and make standard payments using Venmo at no cost. However, this changes when you use a credit card instead of your debit card or checking account. In these scenarios, you will pay a processing fee of 3% on the transaction.

This means it will cost $3 to send $100 to a friend with a credit card linked to your Venmo account. It may not sound like much, but it adds up over time.

2. Pay-With-Venmo Transactions

Venmo provides a quick, easy way for people to pay for products and services. But did you know that the seller (i.e., the business you’re buying from) has to pay a fee to process each purchase?

While it is free to the user, Venmo charges the merchant a fee of 1.9% of the purchase price, plus a flat fee of $0.10 per transaction. So, for example, if they spend $100 on Home Depot stuff, they’ll only get $98 out of it. The other $2 goes to Venmo.

3. Instant Transfers

Let’s say someone sends money to your Venmo account that you want to transfer to your bank account. Thanks to the instant transfer option, you can do exactly that and have access to those funds within 30 minutes.

That’s much faster than the 3-5 business days it usually takes! You pay for the privilege. Standard withdrawals don’t cost a penny, but Venmo takes 1.75% of anything you send via instant transfer. So you will pay a minimum of $0.25 per transfer but no more than $25.

4. Credit card interest and charges

Credit cards are an option when you need quick access to money that you don’t already have. Trouble comes when you miss the payments and get scammed by their notoriously expensive interest rates and late fees.

This is no different than Venmo, which offers Visa and Visa Signature credit cards to eligible customers. Depending on your account, the annual percentage rate (APR) for these cards can be as high as 25.99%. This also applies to cash advances, their transaction fees, and any penalties you incur along the way. In other words, regardless of the number of cases, if you mishandle your Venmo credit card, you run the risk of paying through the nose.

5. Withdrawal Fee

Their debit card is another way the company generates revenue. Although you can get the card for free and use it in store without paying anything, some types of cash withdrawals incur a fee.

For example, if the ATM you withdraw money from isn’t in the MoneyPass network, you’ll pay $2.50 (plus whatever the ATM owner wants to charge). If it is “in-network” then there is no charge. Venmo users also pay $3 for over-the-counter cash withdrawals at a bank or other financial institution.

6. Cashback Program

One of the main incentives for using Venmo’s debit or credit card is the cashback you can earn by using it at select stores/merchants and on eligible purchases.

Everyone is a winner. Users get cashback, merchants increase their sales, and Venmo generates additional revenue. So how does Venmo make money? By associating with a company called Dosh (an automated cashback platform) that pays it a referral commission.

7. Cryptocurrency Fee

Venmo also makes money when people buy and sell cryptocurrencies on the platform. This comes in the form of a transaction fee that increases with the size of the sale. Here’s what users currently pay to sell/buy:

  • anything between $1 and $4.99 costs $0.49
  • Anything between $5 and $24.99 costs $0.99
  • Anything between $25 and $74.99 costs $1.99
  • anything between $75 and $200 costs $2.49
  • Anything between $200.01 and $1000 incurs a 1.80% fee
  • Anything over $1000 incurs a 1.50% fee

However, notice that we didn’t say “hold”. Holding crypto on Venmo is free. You pay only when you buy and sell it.

8. Cash a Check

Venmo allows users to cash checks, verify their email addresses, and enable the direct deposit feature if they have a Venmo debit card. But, once you do, encashing a check in this manner provides quick access to funds.

Unfortunately, this convenience comes at a cost. Venmo charges a whopping 5% on all accepted checks except for payroll and government types, for which it charges 1%. In addition, they will not be able to cash any check worth less than $5. The maximum amount you can cash out in one day is $5,000, and the maximum is $15,000 per month.

But, is Venmo secure?

Generally speaking, yes, Venmo is safe to use. It has a huge user base of 70+ million people. It is safe to assume that those numbers would be astonishingly low if there was a fundamental problem with security!

More specifically, Venmo protects users from unauthorized transactions by using advanced data encryption technology that protects your account information. It stores user data in secure locations on servers and enables people to log out of phones they may lose or get stolen. Combine those precautions with a PIN code you can set, and Venmo should be secure. However, there are some factors to consider.

What are the risks of using Venmo?

Risks come with the realm of Internet-connected apps, especially those involved in financial transactions. So whether we are discussing Venmo, PayPal, Revolut, or other similar apps, users should consider all the risks.

The key comes from hackers. In theory, someone with bad intentions and the right skills could bypass Venmo’s security measures.

If someone gets access to the app, they can transfer funds to another bank account and change the linked email address. This way, transaction notifications will never be received to let the user know that something was wrong.

Thankfully, a few simple strategies can help you avoid this nightmare scenario. Start by limiting the amount of money you store on Venmo and only use it with trusted friends and family. A strong PIN/Touch ID will help if your account is set to “Private”.

If this wasn’t incentive enough to limit how much cash you have in your Venmo account, consider that unlike traditional US banks, Venmo is not insured by the Federal Deposit Insurance Corporation (FDIC). This means that you will not get your money back if the company goes bankrupt or otherwise loses your money.

reduce venmo spending

Ultimately, the best way to reduce your Venmo spending is to reduce the number of products you use that pay for Venmo.

By avoiding their credit cards, cashing checks the old fashioned way, ignoring the instant transfer feature, and only withdrawing cash from ATMs on the MoneyPass network, at no cost to you Money,

It’s more complicated if you’re a business or have a side hustle that accepts Venmo payments. However, the fees involved are unavoidable, so the only option would be to transact cash or turn to cheaper electronic alternatives.

so keep more of your money with you

While millions of Americans use Venmo today, we’ll bet that only a few have an answer to the question, “How does Venmo make money?” Well now you are one of those knowledgeable people who own more money and eventually grow their money net worthNot Venmo.

Not only that, but keeping in mind the information from this article, we hope that you will be able to use the app in a budget-friendly way, keeping more of your own money.

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This article originally appeared on wealth of geeks,