Venmo To Users: If You Owe Us Money, We’re Coming For It (#GotBitcoin?)
The payments service is trying to curb its losses, but some users say Venmo is going after the wrong people. Venmo To Users: If You Owe Us Money, We’re Coming For It (#GotBitcoin?)
Venmo, the digital money-transfer service operated by PayPal Holdings PYPL +0.07% Inc., is ratcheting up pressure on users the company says owe it money for transactions that went awry.
In a bid to curb losses on its platform, Venmo is threatening to sic debt collectors on some users who carry negative balances in their accounts, according to customer-service emails reviewed by The Wall Street Journal. Venmo also recently amended its user agreement to give itself the power to recover money its customers owe by seizing it from their other accounts at PayPal.
PayPal’s difficulties in trying to turn Venmo into a moneymaker show how banks and financial-technology companies are having a hard time making finance faster and more convenient for customers while also earning a profit.
Some recipients of the collection threats say Venmo is targeting the wrong people. Some users Venmo has gone after said they previously reported that the negative balances in question came after fraudsters took over their accounts or the users got duped into sending payments to swindlers. Customer-service emails showed Venmo notifying users it could refer them to a collection agency over amounts as high as $3,000 and as low as $7.
Venmo declined to specify how many times it told users it may send their debt to a collector or whether it followed through on those threats. In a typical email, Venmo tells delinquent users that by “not paying, you run the risk of being reported to a collection agency.”
A spokeswoman acknowledged Venmo updated its policy to give itself authority to seize customers’ money from their other PayPal accounts. “These changes, which have been a PayPal policy for a while, are a result of our efforts to drive policy consistency across platforms,” she said in an email.
In the past 18 months, PayPal rolled out more ways to try to generate revenue from Venmo, including allowing users to buy things online with the service and issuing Venmo debit cards. CEO Dan Schulman said on a call with analysts in January that Venmo was on pace to bring in more than $200 million in revenue in 2019.
But the bulk of the $62 billion in payment volume on Venmo last year came from money transfers. On many of those transactions, Venmo charges no fees but bears the cost to process them.
Individuals can connect the Venmo app to their credit cards, bank accounts or other funding sources and send money digitally with a few swipes. They don’t need to have money already loaded in their Venmo account to make a transfer.
The money shows up in the recipient’s Venmo account almost right away, though it can take a day or two for the funds to actually be removed from the sender’s bank account. If there are glitches in the interim, users can end up owing money to Venmo.
In December, Venmo added language to its user agreement to say that it may “engage in collection and other efforts to recover [money owed to Venmo] from you.” The updated terms and conditions, which went into effect in January, also said that if Venmo finds that users owe it money, the company can go after money held in their PayPal digital wallets or at PayPal’s Xoom remittance service.
Jordan Cole and his wife, Emily, had their Wells Fargo & Co. checking account linked to Venmo when they used the app in January to send $281 to a person on Craigslist for two tickets to a Justin Timberlake concert.
Mr. Cole, a photographer who lives in Denver, soon realized they had been scammed when the seller went silent and never delivered the tickets. He said he and his wife alerted Wells Fargo less than an hour later and Wells Fargo agreed to stop the payment from going through after the Coles paid a fee.
They tried to call Venmo as well, but the customer-service line was closed for the day. So they disconnected the Wells Fargo account from Venmo and called the Venmo hotline the following day, asking a representative to cancel the transaction before it went through.
Nevertheless, Mr. Cole said, Venmo sent the money to the person who scammed him. “Don’t worry, we covered you,” the company said in an email. Venmo also told the Coles they owed Venmo $281. When they hadn’t repaid Venmo about a month after the transfer, the company said they ran the risk of being reported to a collection agency.
A later email from a Venmo representative said the person the Coles paid for the tickets wasn’t an authorized Venmo merchant and that the company wasn’t able to retrieve the funds from him.
“We sympathize that you were a victim of a scam,” a Venmo employee wrote the Coles in an email in March. But “you do make these transactions at your own risk and Venmo is not liable or responsible for any loss that comes from violating our user agreement.”
“Is it worth your time to fight it or pay to make it go away?” Mr. Cole recalled thinking. “It’s such an easy threat to levy against a consumer… [and] an excellent tool to get money whether you’re in the wrong or right.”
After Mr. Cole emailed PayPal and Wells Fargo executives about his case and spoke to a Wall Street Journal reporter, Venmo dropped its demands. If he and his wife want to use Venmo again, the company said, they would have to reread and confirm its terms of service. They decided to delete the app instead.
“Venmo is designed for payments between friends and people who know and trust one another, and our User Agreement states that the platform should not be used to accept payment from (or send payment to) another user for a good or service,” the Venmo spokeswoman said in an email to the Journal.
Last year, following a spike in fraudulent transactions that pushed its operating losses above management’s expectations, Venmo disabled several popular features, the Journal reported in November. Those included the ability to send and receive money through the Venmo website and the ability to transfer funds instantly to a bank account for a fee. Instant transfers were later restored.
PayPal finance chief John Rainey said on the January conference call that Venmo had yet to be profitable and that he didn’t want to predict when it would break even.
Venmo’s Latest Effort To Turn A Profit: Credit Cards
Digital payments company goes old-school in attempt to squeeze more revenue from large but not lucrative user base.
Venmo’s latest gambit to profit off its massive but still-not-lucrative user base involves a decidedly old-school idea: credit cards.
Executives at the digital payments company have been meeting with banks since late last year to discuss issuing a Venmo-branded credit card, people familiar with the matter said. The company, owned by PayPal Holdings Inc., is close to selecting Synchrony Financial as its credit-card issuer and is hoping to announce the card this year, one of the people said.
Rewards and other potential features of the planned card are still being discussed, the people said.
Venmo, which offers a mobile money-transfer app, is the latest technology company to explore entering the credit-card business as a way to boost revenue and consumer engagement. Companies such as PayPal, once considered a competitor to card networks and banks, are increasingly joining with them instead.
Venmo is one of the relatively few financial apps to earn widespread adoption—to the point where its brand name is used as a verb. More than 27 million users are expected to make a Venmo payment from their smartphones in 2019, according to research firm eMarketer.
Despite its popularity, Venmo has been bleeding money for years. Most Venmo payments consist of money transfers between two people, transactions for which the company absorbs processing costs that it doesn’t typically pass on to customers. This year the money-transfer business is expected to report an estimated operating loss of $394 million, according to analysts at Nomura Holdings Inc.
In recent years, under PayPal Chief Executive Dan Schulman, Venmo has introduced a suite of new features designed to boost revenue. Users now can pay a 1% fee to move money instantly from their Venmo balances to their bank accounts. Millions of online businesses and some bricks-and-mortar merchants pay Venmo a fee to accept it as a payment method. Last year, Venmo started offering debit cards in a partnership with Mastercard Inc. and a separate bank.
Heading into 2019, those efforts were on pace to generate annual revenue exceeding $200 million, Mr. Schulman told analysts on a January conference call. But Venmo isn’t expected to break even for at least several quarters, Chief Financial Officer John Rainey said on the same call.
A Venmo credit card could help push Venmo into the black and help achieve a broader PayPal goal of increasing its market share at offline retailers.
Venmo is entering a crowded market as more technology companies develop credit cards to incentivize spending. Apple Inc. is working with Goldman Sachs Group Inc. to roll out a new line of credit cards later this year that would sync with users’ iPhones. American Express Co. recently began issuing Amazon.com Inc. credit cards for small businesses.
Airlines and other vendors that already offer credit cards are finding themselves competing for consumers who prefer using bank-labeled, general-purpose credit cards with generous rewards. Growth in issuance of both general-purpose and co-branded credit cards in the U.S. has slowed since 2017, according to Mercator Advisory Group.
With its credit card, Venmo hopes to squeeze more revenue from the many young consumers who use only its free service. Roughly one in five consumers between ages 20 and 24 surveyed by 451 Research last year said they had made a Venmo payment.
The Venmo discussions are separate from deals PayPal has already negotiated with Synchrony, which has offered PayPal credit cards since 2004. Last July, Synchrony acquired $7.6 billion of PayPal Credit loan balances made to finance online purchases.
Synchrony has added more digital card partners in recent years. The company—the largest U.S. store-credit-card issuer—counted Toys “R” Us as a partner until the retailer filed for bankruptcy, and lists JCPenney as one of its five largest retail-card partners.
Synchrony was dealt a major blow last year when Walmart Inc., one of its largest retail partners for roughly two decades, told Synchrony that Capital One Financial Corp. would become its new credit-card issuer.
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