You may use Venmo, PayPal, or QuickPay to send your friends money after they picked up the tab for dinner or paid for the hotel room. Maybe you use them to pay your share of rent or utilities. These so-called person-to-person (P2P) payment apps often don’t have transaction fees.
These types of apps are on the rise. Last year, eMarketer predicted that the number of people using P2P mobile payment products in the U.S. would rise 30 percent to encompass 82.5 million people. So, how exactly do these peer-to-peer apps make money? That largely depends on the app.
How payment apps make money without charging any fees
Everyone who uses apps is used to advertising banners and pop-ups within apps. It’s how most apps make money. Payment apps, however, lack these obvious ways of advertising. Instead, these apps sometimes generate funding through transaction fees.
Venmo, for example, doesn’t charge a fee to transfer funds through a major debit card or checking account. But they do charge a small 3% fee for any payments made via a credit card. Perhaps more importantly, Venmo is owned by payment giant PayPal, so even though Venmo doesn’t really make any money, it extends the reach of PayPal, which makes a ton of money.
In fact, larger companies using payment apps as part of a broader strategy seems to be a trend. Square, the creator of the Cash App, is building an empire. In addition to the Cash app, they have payment products for merchants where they charge low fees and in return gain heaps of data. How will they use the data? Some financial experts suggest the data could be used to provide marketing recommendations that match specific users previous purchases. Only time will tell.
Venmo and Cash are both owned by parents that would be classified as technology companies. Zelle, on the other hand, was originally developed — and is still owned — by a group of banks. Launching a product to compete with the likes of Venmo is a way for these banks to ward off competition from new, tech-savvy companies entering their industry.
As you can see, the question for many P2P payment apps isn’t how much money they’re making on their own, but how they fit into a company’s larger strategy. It’s worth remembering that in the long run, detailed data on when and why people send money to each other is extremely valuable, much more so than the money these companies would make charging small payment fees right now.
People are no longer interested in carrying wads of cash when making purchases or during nights out with friends. Instead, person-to-person apps fill in the gap in a way that makes sense in this age of smartphones and online banking. How they make money varies, as do the ways they use your data, so always read the fine print when using one of these apps.
If you’re trying to figure out which payment app is best for you, take a look at this comparison between Square Cash and PayPal.
Watch the video below for more information on person-to-person payment apps.