In order to understand the significant impacts of Paypal and Venmo on society, we must first understand some of the history in the creation of these apps. In the fall of 2008, Peter Thiel returned to his alma mater of Stanford to guest lecture about market globalization and political freedom. He was introduced to a brilliant young mind while visiting Stanford. This mind belonged to a young man named Max Levchin. Their ideals were of similar motive and they began working on what would be later known as the massive corporation of PayPal. Both Levchin and Thiel believed that making money easier to transfer between people while simultaneously keeping people’s money from depreciating due to inflation. Little did they know that their initial idea would grow and transform in ways they could not even begin to imagine.
Thiel and Levchin started with the security aspect of holding and transferring money digitally. They wanted to make carrying money on a PDA safer than carrying it in a wallet. Thus, the first idea of a digital wallet was born. After creating this idea, Thiel and Levchin launched Fieldlink, which focused on securely holding money on a palmpilot or PDA. With the security down, the next step was to be able to make transfers between individuals from their PDAs. Levchin and Thiel cleverly invented a new word to describe and name their new company. Combining infinity and confidence, the two minds created Confinity, and within that instant the first company was created that worked toward the digital transfer of money.
PayPal was later created as a service offered by Confinity after $4.5 million dollars of venture money was “beamed” to Thiel from Nokia Ventures and the Deutsche Bank in July of 1999 using a palm pilot. After engineers at PayPal created a demo of an online money transfer system using email, Confinity merged with X.com, a company owned by entrepreneur Elon Musk, who saw potential in the business of digitally transferring money. X.com later changed its name to PayPal, officially solidifying the two inevators’ idea of a digital wallet into a success.
PayPal took off, and made a name for itself in the world of online purchases. Users of many online markets used PayPal to make payments after purchasing a good. Ebay users would post the PayPal logo on their profiles to urge buyers to use the digital money transfer company to pay for their purchases. Ebay took note of this and bought PayPal when they went public in 2002 for $1.5 billion.
PayPal was the first company of its kind. A trailblazer for the digital transfer of money that did not go directly through banks. PayPal is still used today, but has spurred many other creative thinkers to create companies of the same clothe. One of those companies is now the fasting growing, most popular money transferring app on the market. It even has a catchy name; Venmo.
The idea started with two University of Pennsylvania roommates. Iqram Magdon-Ismail and Andrew Kortina. Both were confronting the idea of figuring out how an individual could payback a friend who had covered some expense without the hassle of writing a check or handing each other cash. PayPal came to mind, but they realized that no one was using PayPal for everyday money flow between friends.
The idea, and even the name, started with their music based sharing concept. People could send their email to a band and the name of a song they wanted and that song would be emailed in mp3 format to the individual. Kortina describes this as the grassrotts thinking for the money-sharing Venmo concept.
The final piece that was missing from Kortina and Ismail’s plan was inspiration. Kortina describes in his blog about how Ismail came to visit him in New York, and left his wallet at home when they went out for the night. Kortina gladly covered Ismail, but both wondered if there was a better way for Ismail to pay back his friend other than writing a check.
Starting their scheme in a text-message format, the two programmers realized that each payment, along with a short note of what it was for, started to look more like a social network than a payment program. The two decided to make payments sharable to other friends on their website that kept track of payments. This idea grew into what the app is today
The advancements in the transfer and handling of money through apps like Paypal and Venmo have now rendered many of the old ways of doing so obsolete. One of the most common ways of transferring money to another person before the creation of these two applications was through wire transfers at the bank. A wire transfer is an electronic payment service for transferring funds by wire, for example through SWIFT, the Federal Reserve Wire Network or the Clearing House Interbank Payments System.
In the past, the only way to transfer money to another person’s bank account was by requesting a wire transfer at a bank. The bank clerks would usually do the wire transfer for you, and ask for a fee in order to complete the process. With the wire transfer, one could also send a telegram with the money that would go to the person on the receiving end. Now, wire transfers can be done electronically by any individual through companies like PayPal, but the telegram is no longer a part of the process. This not only makes individual’s lives easier, but the fee for completing a wire transfer is no longer necessary since we no longer need to pay a bank for the service. While this makes the process of money transfer more convenient for individuals, the advances in the process of money transfer are affecting communication.
PayPal also does charge a small percent for payments sent but they can usually be avoided if they are sent to an individual as a “gift.” No fee is charged to people using Venmo, or if purchasing items on websites that support payments through PayPal such as eBay. The convenience and lower cost of utilizing these apps over wire transfers has rendered the necessity of wire transfers obsolete.
Checkbooks have now also become a thing of the past. The factors that have contributed to the decline of the checkbook are speed, processing time, security, and the simplicity of other forms of payment. By speed, I mean the amount of time it actually takes to write out all the information necessary into a checkbook. Checkbooks require writing the name of the person or company receiving the amount of money, the amount of money in numbers, the amount of money in written words, the date, and a signature. This alone takes longer than any of the other forms of payment. The processing time for the check to go through also takes a long time. It can take anywhere from one to three days for a check to process and for funds to become available. This becomes a hassle since other forms of payment such as credit card, debit card, cash, or phone payments allow funds to appear almost immediately with exception to phone transfers taking, at most, a day to process. Also when it comes to checks, there is a lack of security. While checks are processed it is possible that a check may bounce if there is not enough balance in the person’s account. This becomes problematic to the person who is seeking payment for a product or service. Checks make it easier for people to get scammed and robbed. Sometimes a bank can cover the amount of money the person wished to transfer if their balance is too low, but then the bank can also charge an overdraft fee. Due to the many issues with checks, they are used less and less frequently since online and mobile banking with companies like Paypal is much more effective and secure.
Wire transfers through banks and checkbooks are not the only things that are appearing outdated, but cash itself is being considered obsolete. According to PayPal, they believe that within the next three years, cash will become redundant and a thing of the past. Paypal believes that cash is no longer necessary because they have made the process of payments much easier and the use of credit cards and phone payments will be used daily. Paypal recently launched a new payment app that will allow people to “Pay for everyday purchases via mobile phone apps and cards with the result people will no longer need to carry real money.” What this process entails is that people have the choice to pay by card or by phone, and the retailer would get a “transaction confirmed” message on their smartphone or tablet after the payment is complete. PayPal stated that most people do not carry more than 20 Euros in their wallets and purses, so by increasing the accessibility to money through the new application, cash should not be necessary. This would render cash useless once the application takes off.
The utility of physically carrying money is further discouraged through the Venmo app. Venmo is a money-transferring app that allows users to quickly send money to other users. The app makes paying a friend back for dinner or a cab simple, unlike trying to pay someone back with cash. Apps like Venmo, GoogleWallet, Paypal, and others have become increasingly popular, and is already becoming the main way of transferring money. One of the greatest features of Venmo is its newsfeed. Venmo puts every transfer between any two users on a newsfeed that people who are friends with either one of the people can see. The post to the newsfeed puts the time of the transfer, the name of both people involved in the transfer, and the reason for the transfer as determined by the users. The newsfeed feature of Venmo has made it similar to other social media apps such as Twitter or Facebook, just without the ability to show trending news.
The Venmo newsfeed is similar to the old days of wire transfers where a telegram could be sent with the money as well. The only difference is the lack of privacy of Venmo. Venmo literally puts all of your business out there. However since the transfers are normally small in nature most people don’t worry about people seeing that they just paid their friend back ten or twenty dollars. In fact most people enjoy watching the Venmo newsfeed. The subject lines for explaining why people made the transfer are frequently used as a platform to make jokes. Some people have even gone as far as having a conversation on Venmo by just exchanging a dollar back and forth.
Something about watching what people spend money on is fascinating. Normally on other, actual social media sites such as Twitter, it is either inappropriate, dumb, or often times both when it comes to talking about money. Nobody puts the amount of money, or even really talks about paying someone for something on social media sites because there is an inherent danger. If people know you are willing to spend money, they figure you must have money in the first place, which is enough of an excuse to steal your money for some. However on Venmo since every post revolves around the transfer of money, it makes it acceptable to talk freely about what you are doing with your money. People are even able to comment on posts on the Venmo newsfeed, or in other words literally say something regarding how or what a person spends money. The option to like a post is also available of course, so Venmo really does have an authentic social media app feel to it, even though its primary purpose is just to transfer money.
Wire transfers are old fashion, and Paypal was never really meant to be a money transfer app as we said earlier, which is why Venmo mainly attracts a younger audience. High school students to young adults just out of college are the probably the main users of Venmo right now. This small audience excludes young children, and older adults, which explains why people feel free to put just about anything as their subject line. This trust has caused some funny posts, but in the larger context this trust has destroyed any barriers that may have previously stopped hackers or stalkers on other social media sites. Venmo determines friends through Facebook, and we all know we have people who we haven’t talked to in years, or people we actively ignore in real life as friends on Facebook. If someone is your friend on Facebook, then they are entitled to see what you spend money on according to Venmo.
Privacy has always been an issue with social media because people have a hard time sometimes deciphering what they should put out in the world, and what they should keep to themselves. Venmo does not allow the choice of privacy because it puts every transfer on its newsfeed. Most people seem to find it hilarious, but its actually kind of frightening to think that an app that has access to your bank account would not allow some sort of privacy in the choice of posting about transfers. We talked about the lack of security when it came to transferring money via checks and cash, but Venmo has its own problems as well. Venmo seems to almost encourage people to try and stalk people through their transfers. What if Venmo allowed for the option to let people put how much money was transferred, or the location of the transfer? Location is a common feature being added to a lot of apps, and Venmo would probably not be against adding it. The dangers of watching what people spend money on, and who they spend it with is frightening, and the fact that most people just get a quick laugh out of it is kind of frightening too.
Technology is slowly becoming more integrated in our daily lives, it is only natural that it becomes a major part of what a large majority of human endeavors seek to gain. Money has always been the biggest motivator for some of the greatest inventions of our time. This innovation has expanded itself to not only the endeavor for gaining money, but as a venue for spending it. As more and more people become exposed to Venmo and PayPal, it slowly and slowly becomes the norm. As we know of all things, as they stick around, they become more commonplace and soon enough, everyone has it. It becomes a staple in everyone’s daily life, and soon enough people forget how they got along without it. The cell phone being a great example, and things like Snapchat and group texting only strengthen this case. Venmo and PayPal are on the same fast track to normalcy.
As more and more people obtain smart phones that run various apps, so increases the number of people that have the means to access Venmo. Cell phones in themselves are not free, so these people that now have cell phones are going to want a way to spend all this money they didn’t use up on their brand new phone. Enter Venmo.
With more consumers with access, to only makes sense for more people to use it. All it takes is one instance for it to be spread. One person who has it goes to dinner with a friend who does nott, and the friend forgets his wallet. The one with Venmo tells him to go download it and send him the money, and all of a sudden, this person can do things and spend money without even bringing his wallet, as long as someone is willing to cover him. He remembers this, and soon enough, he is sending money through Venmo weekly, and “Venmo’ing” enters his personal lexicon. The more he uses it, the more he becomes used to it, and doesn’t know how he got along without it. We have seen this with things like Google and Photoshop, and people already use the phrase “just Venmo me the money” on smaller scales. It is slowly becoming a giant, similar to PayPal and other money transfer services that we have before, such as wire transfers.
As with every giant, however, there are always competitors. Google has Bing and Yahoo search engines, Apple has Android, and Venmo has Square Cash and Google Wallet. Square Case was realeased only one year after Venmo, but has been much slower to pick up steam. Often times, the first one is the one that gains the notoriety and success, regardless of the benefits that later brands or products provide. Sqaure Cash, however, has paired themselves with the social giant of Snapchat to create SnapCash.
With this, it questions how powerful Venmo has become, and if it is powerful enough to withstand the newest opponent in the digital finance arena. SnapCash as a joint entity poses a major threat for the very reason Snapchat itself became a giant in its own field.
Snapchat has the attention of the entire youth, and even some of the older generation. Most everyone with a smartphone that has Venmo will likely have Snapchat already, so there is nothing else for the consumer to go get other than a typical update. For a giant this big to topple and an opponent in the same arena to be truly competitive, it has to build off of something that’s already in front of the people instead of the ground up. From a competitive standpoint, the next question is where does each group go next to improve themselves over the other?
The answer may already be present in both. In Venmo, we’ve already discussed the social aspect, involving the news feed. This is an easy way for Venmo to continue, because as a society that has become engrossed in social media and watching what everyone is doing, there is never enough of everyone else’s business to be consumed. Venmo already has access to what many other social services do not: people’s wallets. The other social media superstars like Facebook and Twitter tell the rest of the world what someone is doing, but not what they’re spending. In a world already proven to revolve around money, Venmo’s social feed has an inherent hold on what the people look for when trying to delve into everyone else’s lives. With this hold, they can expand into nearly anything from hosting the finances for professional gambling circuits to under the table paychecks for teenagers.
Written by: Mike Moore