Thanks to the many recent innovations in the fintech space, repaying your friend for coffee is a whole lot easier. With cash transfer apps like Venmo and PayPal PYPL, sending and receiving funds is as easy as the tap of a button on your mobile phone.
But with the plethora of options available now, from Square SQ Cash to Google GOOGL Pay, picking a service may be a bit more of a challenge.
PayPal has long been one of the pioneers and strongest players in the payment service space, founded as far back as 1998. And after its acquisition of fellow payments app Venmo in 2013 as part of an acquisition of Braintree for some $800 million, it seems as though the two apps in concert have been dominating the space.
What Is Venmo?
Venmo is a free-to-use payment service and app that allows users to send and receive funds from contacts or friends and connects to users' bank accounts and credit or debit cards. The app is owned by PayPal and is currently only available to users within the U.S.
Unlike PayPal, Venmo is a mobile-first service, largely designed for relatively small fund transfers with an inherent social aspect given the (optional) visibility of transfers.
The payment service was originally founded in 2009 but released to the public as a money transfer app in 2012 for iPhone and Android users. Venmo is using the P2P (peer-to-peer) market to allow users to quickly share payments by attaching their bank accounts and/or credit and debit cards to the service. And while there is a small fee for instant transfers to cards, bank transfers from the app are free of transaction fees.
But apart from its simple model, Venmo has become something of a social media platform itself - with people increasingly using the colloquial phrase, "Venmo me" to ask for payment over the app. And the familiarity among users seems to be paying off - as Venmo reportedly saw some $19 billion in payments in the final quarter of 2018.
The payment service was acquired by fintech giant PayPal as part of a larger acquisition of fellow payments service Braintree in 2013.
Still, how is Venmo different from parent company PayPal?
What Is PayPal?
PayPal is one of the first payment services and digital wallets that has dominated the market for cash apps in recent years. The payment service allows users to connect their bank accounts and credit or debit cards to their account and send and receive payments on mobile devices. Additionally, PayPal is expanding to offer more products and services to businesses and consumers.
Originally the payment provider to eBay EBAY, PayPal has since expanded its services into an almost bank-like space, offering things like loans and business products.
According to Datanyze, PayPal is dominating the fintech space, with over 60% market share among payment apps.
The payment processing company was originally founded back in the 1990s by several high-profile entrepreneurs including Peter Thiel and Tesla TSLA CEO Elon Musk. Since its founding, the company has made several key acquisitions - including Venmo.
And with some 267 million active users, PayPal certainly has a strong customer base - not to mention their total payment volume for the final quarter of 2018 topped $163 billion.
Given that PayPal now owns Venmo, what is the difference between the services?
Venmo vs. PayPal: What's the Difference?
To be sure, Venmo and PayPal share a lot of similarities. They are both parts of the same company, for one, and they share a similar fee model and general format.
Here are some of the differences between Venmo and PayPal.
A major concern for many users when choosing a payment service or cash app is its safety.
While there have been a couple of flags raised in the past, Venmo has bank-grade security and encryption - as well as a personal PIN code the app gives users for mobile transactions.
Additionally, PayPal has a similar security and encryption system in place to protect user's funds. However, unlike Venmo, which requires users to register an account, PayPal doesn't require contacts or "friends" to transfer money.
Still, according to their site, PayPal claims to keep all your information safe: "When you send a payment using PayPal, the recipient won't receive sensitive financial information like your credit card or bank account number. This way, you don't have to worry about paying people you don't know," the site says.
PayPal also uses data servers to continuously scan browsers to make sure they are using updated data encryption technology for better safety. Additionally, the service will also send users a confirmation email whenever their transaction is completed or sent to alert users that their funds reached the recipient.
Given that both services have pretty comprehensive security measures in place, users could help protect their accounts by safeguarding their password and bank or card information.
PayPal was created to work with businesses in addition to individuals as a way to make digital payments and transfers - so its infrastructure is pretty well suited for business.
The payment service has several enterprise plans specifically designed for small businesses, as well as special business fees and services.
Among many other services, PayPal offers a "Business in a Box" plan - which includes payment processing, the ability to set up an online store, financial tracking and organization and even funding through the PayPal Business Loan or PayPal Working Capital. The plan is free to sign up for set merchant rates and other fees.
Additionally, PayPal provides point-of-sale and credit transactions, as well as mobile card readers that come with fees of 2.7% for swipe or check-in transactions, 3.5% plus 15 cents for keyed or scanned transactions and a 2.7% fee for non-U.S. cards plus 1.5% cross-border fee.
However, much fewer businesses use Venmo for payments or as payment for goods and services.
But compared to PayPal, Venmo has much less business-oriented features and is designed more for P2P transactions as it doesn't provide any special loans or fees for merchants.
Venmo has a much smaller transfer limit than PayPal, allowing users to transfer up to $3,000 at a time compared to PayPal's $10,000.
The transfer limits are related to how the services are meant to be used - Venmo is primarily meant to cover more day-to-day purchases and transfers while PayPal is designed for both daily transactions and bigger withdrawals or transfers.
It seems as though there has been somewhat of a phenomenon surrounding Venmo's surprising social quality - which has prompted people to even resort to the app to "follow" their friends or contacts like they would on other platforms.
While PayPal doesn't hold this same public quality, Venmo has taken on somewhat of a social media-esque persona through its public (optionally private) transactions that allow users to add emojis, comments and likes to transactions between their friends.
Given Venmo's social aspect, the app is typically used for smaller transactions like paying back a friend for dinner or a Lyft LYFT ride.
When it comes to cost, Venmo and PayPal have similar pricing structures.
First and foremost, both services' apps are free to download and use.
However, both services charge a 2.9% fee for credit and debit transfers, but PayPal adds 30 cents for credit transfers and Venmo waives the fee for debit cards, opting instead to charge 25 cents for instant transfers to debit.
Additionally, both services offer free transfers to bank accounts or from account balances.
PayPal also has a separate set of merchant fees for companies using the service to process payments. For selling goods online, standard fees for the U.S. are 2.9% of the amount plus a fixed fee based on the currency used. And for in-store transactions, you'll pay a fixed rate of 2.7% the transaction amount.
PayPal and Venmo have comparable withdrawal speeds; PayPal typically has a withdrawal speed of one to two business days compared to Venmo's one.
Both of the payment services' withdrawal speeds are on par with, if not better than, most of their competitors - who typically average between one and three business days.
One major aspect of PayPal's growing business is its expansion into areas that have it acting slightly more like a bank than a mere app. PayPal now performs services like extending credit, financing purchases and even giving customers a MasterCard MA designed for specific PayPal uses.
Additionally, many stores accept PayPal as a payment method for goods, while relatively few accept Venmo. TheStreet reported earlier this year that PayPal is accepted as payment at 82% of top retailers.
And while Venmo has accounts that typically have the user's photo and friends or connections associated with it, PayPal also has a shareable link called PayPal.me that allows users to know who is sending them money or who is receiving it. Users can send the link to customers, friends or companies and can get paid by following the link.
However, while not necessarily a feature, Venmo does provide a unique user experience with its feed of transactions, allowing friends and contacts (much like a social media site like Twitter TWTR or Facebook FB ) to interact, comment or like cleverly-phrased requests for cash.
While Venmo has also started branching into other financial products like a debit card, it is still trailing PayPal in this area.
Venmo vs. PayPal: Which Is Better for You?
Well, as always, that largely depends on what you're using the service for. For individuals who are primarily paying relatively small amounts to connections or friends (basically, people you know), Venmo offers low fees and a simple format that widely appeals to users of all ages - specifically millennials. The app's design and features are best suited for smaller, daily transactions than big purchases or transfers, and is designed to be used between friends.
On the other hand, PayPal is probably best suited for users who are either businesses and merchants or users who need to send larger transfers or exchange funds with people they may not know. The payment service is also prime for online shopping and has a wider range of products and offers (like loans and even a MasterCard).
Additionally, if you are one to use cash apps or payment services for purchases, PayPal has a wider range of retailers that accept it.
While both services essentially perform similar functions, Venmo is potentially better for users who just want to send and receive smaller amounts of money with low or no fees daily, while small businesses or customers who make a lot of online or large purchases and transactions may want to opt for PayPal.