Network effects fuel the rise of Venmo
“Just venmo me.” We’ve all heard it, we’ve all said it.
Venmo has become one of the most popular forms of payment, with network effects a key factor for their rise. I personally tried to stay off Venmo for as long as possible; the idea of someone getting ahold of my phone and making random payments was always in the back of my mind. But as more people and organizations on campus got on Venmo, I had to join or risk missing out on opportunities and receiving late payments because who carries cash these days. Compare this to the example of Facebook given in class – if no one is using Facebook, it’s not valuable and there’s significantly less gain from joining. However, once people start using Facebook (and Venmo), it becomes more valuable. Of course, we can’t attribute Venmo’s success to network effects without considering tipping points. In regards to that, it seems that Venmo has long since passed its tipping point as its popularity continues to grow even to this day.
Venmo has become so ubiquitous that PayPal, perhaps the premier online payments system and owner of Venmo, plans to make it a major part of the business. As the article describes, Paypal is now allowing U.S. retailers to accept payments through Venmo. Consumers will now be able to use their phones to make payments on purchases at Foot Locker, Lululemon Athletica Inc and Forever 21. Previously, Venmo has never been a significant part of PayPal’s revenue. In fact, over 75% of respondents in an S&P Global Market Intelligence survey use PayPal to send and receive payments, compared to only about 15% for Venmo. However, Venmo has grown drastically in the past year, going from about $3.9B of total payment volume in Q2 2016 to $8B in Q2 2017. The article specifically attributes “free and frictionless payments coupled with a unique social element” as major factors for Venmo’s growth, benefits that are only be possible with a large user base. It remains to be seen how much further network effects can fuel Venmo, but even at this point the growth it has seen is quite remarkable to observe.