The fourth quarter of 2018 was kind to Venmo and Zelle, the two big peer-to-peer (P2P) services that are battling for consumer loyalty and market supremacy — a fight that pits PayPal, the owner of Venmo, against the banks that operate Zelle. The numbers tell a story of ongoing growth and more consumer acceptance.
However, even as P2P becomes a bigger part of peoples’ daily lives, the coming year will bring the challenges of earning more revenue from those services, and persuading a broader group of consumers to use these digital payment methods. If 2018 was a year of significant growth for Venmo and Zelle, 2019 could see those P2P services become more mature and entrenched.
A look at the recent Q4 financial figures for P2P tells a mostly positive story.
Venmo posted an 80 percent spike in transaction volume, hitting $19 billion in the fourth quarter of 2018, according to PayPal’s most recent financial earnings release. When it came to total P2P volume, including transfers sent through the core PayPal service, the Q4 volume hit $39 billion.
That last figure was ahead of Zelle’s reported payment volume of $35 billion during the fourth quarter of 2018, but there’s a hitch to that — that $39 billion was for the entire PayPal network, not just Venmo for that quarter.
Meanwhile, for the full year 2018, Zelle had $119 billion worth of payments via 433 million transactions, according to Early Warning Services, the operator of that P2P service. The Zelle network includes “229 financial institutions (FIs) — 60 of which are live and processing transactions,” Early Warning said. Those institutions serve some 100 million customers.
For its part, PayPal said that nearly $62 billion changed hands on the Venmo platform last year, though PayPal did not say how many transactions that involved. (PayPal, as a whole, had some 242 customer accounts as of Dec. 31, 2018, with a year-end goal of 300 million.) For the full year 2018, total P2P volume increased 49 percent to about $149 billion.
Neither Zelle nor Venmo released figures about how many consumers have signed up for P2P services. However, an estimate from late last year projected that Venmo would have 22.9 million U.S. users by year’s end, behind Zelle’s 27.4 million — further evidence of the battle being waged.
Venmo provides a strong example of that as it becomes a more important part of PayPal. “You’ve got Venmo continuing, quarter after quarter after quarter, to have incredibly strong net new actives,” said PayPal CEO Dan Schulman during the company’s Q4 post-earnings conference call. The value “of Venmo and the network effects on core PayPal are clearly coming into play.”
Yet, Venmo needs to be better monetized, according to PayPal executives this week.
“If [you] asked us a few months ago, I think the perception was that most of the monetization happening [with Venmo] was around Instant Cash Out,” said PayPal COO Bill Ready, who also runs Venmo. He was referring to the Venmo service that enables P2P participants to draw funds from the Venmo app.
He added, though, that Venmo Card and Pay with Venmo are also “growing really, really nicely,” and that the “commerce side of Venmo” is gaining traction, including food delivery transactions that involve Grubhub and Uber Eats. As Ready pointed out, such purchases are “daily, high-frequency type transactions” — reasons for optimism on PayPal's part that Venmo monetization, in Ready’s words, will be “far more than just Instant Cash Out.”
Last year, Venmo launched a Mastercard-branded debit card — one method of monetization, as transactions done on the card can be identified, of course, as originating from Venmo cards. The aim is to enable consumers who use Venmo to spend their balances in more places. Any merchant that accepts Mastercard payments can accept the Venmo cards.
Zelle Bank Gains
Zelle, too, is benefiting from new P2P participants — and that includes new FIs that have begun to use the service, according to Early Warning. Some of those new P2P offerings even come from smaller FIs, the company noted.
Early Warning said that 85 percent of the FIs that are part of the Zelle network “are regional and community banks, or credit unions with assets less than or equal to $10 billion, while 77 percent of participants list assets less than or equal to $1 billion.” Those smaller FIs face the fierce challenge of keeping up with the mobile and other digital technology demands of customers (mobile banking has arguably become one of the stickiest mobile apps, given the utility they provide), and offering P2P payments can help with such efforts.
Another interesting data point emerged from the Q4 figures about Zelle, one that could signal increasing use of P2P for daily transactions, though the trend is not totally clear yet. The average Zelle transaction amount stands at $258. That’s a big drop from the average transaction amount of $400 a year ago. However, to Lou Anne Alexander, group president of payments at Early Warning, that decrease is actually good news — meaning Zelle customers are using the money transfer service more for everyday payments, in addition to bigger ticket items, such as rent and utility bills.
New P2P Consumers?
Still, the perception endures that Zelle is used more often for high-ticket transactions than Venmo, which is often seen as the P2P payment method preferred by younger consumers out for a night on the town or splitting the check. That may or may not be true, and the coming year will bring more clarity to that question.
P2P, generally speaking, is more than a young person’s payment tool, even if Venmo is seen that way. Research has suggested that while those younger consumers — that is, age 50 and below — are indeed the main users of P2P payments, baby boomers — the generation that is now retiring — do use services such as Zelle and Venmo. In fact, 51 percent have used online or other P2P services, which compares to 75 percent of millennials and 69 percent of Gen Xers. More baby boomers still use cash and checks than P2P services, but the numbers do indicate that there is room for P2P growth among older, and even retired, consumers.
The coming months will bring fresh numbers and stories about P2P — about its fuller monetization potential, its ability to reach more consumers and the appeal of its use in more types of transactions.