PayPal steps up efforts to make money off Venmo with new fee changes

PayPal Holdings Inc.’s Venmo is making several changes to its platform, with plans to increase the fees for instant deposits that users make to their bank accounts and add an option that lets people designate that they’re paying another user for the purchase of goods and services.

The moves come as PayPal
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looks to turn Venmo into a bigger revenue engine while still trying to maintain the service’s appeal among the many younger users who rely on it to send money to their friends.

Venmo plans to add a function that will let senders identify whether they’re making Venmo payments to cover the purchase of goods and services, according to a notice that began rolling out to Venmo customers this week. The change will allow users to gain purchase-protection benefits on eligible payments, though the sellers of these goods and services will start being charged 1.9% of the transaction amount, plus 10 cents, to receive money this way.

It’s free for people to send or receive money through Venmo, which got its start as a way for friends and family to exchange money with one another. But Venmo is also used for business purposes, as folks like hairstylists, artists, and other sole proprietors opt to accept customer payments through the service. Venmo has been looking to capitalize on this kind of commercial activity while preserving the ability for friends to freely pay one another.

Venmo processed $51 billion in total payment volume during the first quarter, with that total representing a combination of personal and commercial payments.

Those exchanging money through PayPal’s core peer-to-peer (P2P) platform have already had the option to designate payments as being for goods and services while enabling purchase protections, and Chief Executive Dan Schulman said on the company’s last earnings call in May that this is “a huge revenue generator on the PayPal P2P side.” He added that the “same thing will be happening on the Venmo side.”

Venmo also lets sellers create “business profiles” that allow them to separate commercial transactions from their personal Venmo payment histories. Sellers pay a fee of 1.9% of the transaction account, plus 10 cents, when they opt to collect payments this way, which is the same fee structure that Venmo is setting out for the new option that will let senders designate whether their payments are commercial in nature.

Some sellers conducting commerce through Venmo likely haven’t converted over to business accounts, and Venmo’s newly announced changes seem aimed at addressing that.

The company also began notifying users this week that it will raise the cost of “instant” transfers of account funds that users make to their debit cards or bank accounts. The new instant-transfer fee will be 1.5% of the transaction amount, with a minimum charge of 25 cents and a maximum charge of $15. The prior fee was 1% of the transaction total with the same 25-cent minimum fee and a maximum of $10.

The instant-transfer option allows Venmo users to move money from their Venmo mobile wallets to their bank accounts or debit cards that becomes “typically available in minutes,” according to the company’s published fee information. Venmo will continue to let users conduct free withdrawals of money from their accounts, through a process that can transfer the funds in one to three business days.

The new instant-transfer fee goes into effect Aug. 2, while the new option for goods and services becomes effective July 20.

Venmo’s changes come after PayPal announced late last week a series of fee increases for the core PayPal platform. The fee for PayPal commercial transactions like core checkout will soon be 3.49% plus 49 cents, up from 2.9% plus 30 cents previously.

The core PayPal changes suggest “greater confidence by PayPal around the value of its branded checkout for merchants” relative to card-based checkout, according to Bernstein analyst Harshita Rawat.