PayPal's Venmo Is Winning Mobile Payments

| About: PayPal Holdings, (PYPL)

Summary

Venmo processed nearly $3.2 billion in payment volume in Q1, up over 150% from last year.

Venmo made it possible for app developers to integrate Venmo payment functionality into their mobile applications.

Venmo and PayPal are the best vehicles for exposure to the mobile payment revolution.

About a year ago, July 2015, I wrote an article on Seeking Alpha about a new app called Venmo. At the time, Venmo was a relatively unknown mobile application and asset for parent company PayPal (NASDAQ:PYPL). In the article, I argued Venmo's ease of use and rapid adoption would give the application huge advantage over Dwolla, Square, and others. Since then, Venmo's users, usage, and value have increased dramatically. In this short article, I want to provide some updates and reconfirm why I believe PayPal, and Venmo, are the best vehicle for exposure to mobile payments.

Why Mobile Payments?

Here are a few of my favorite stats from the Federal Reserve:

  • Eighty-seven percent of the U.S. adult population has a mobile phone.

  • Seventy-one percent of mobile phones are smartphones (Internet-enabled), up from 61 percent a year earlier.

  • Thirty-nine percent of all mobile phone owners with a bank account have used mobile banking in the 12 months.

  • Twenty-nine percent of all mobile phone users and 38 percent of smartphone users have used their phone to track purchases and expenses.

  • Sixty-seven percent of the unbanked have access to a mobile phone, 65 percent of which are smartphones.

Smartphone adoption has paved the way for mobile payments. Unbanked and underbanked consumers are in dramatic need for financial services. And, consumers are adopting technology faster than ever. Cash is no longer king. Venmo is now king among Millennials.

Venmo Users and Usage

Venmo has surged in popularity among Millennials and college students. In last quarter's conference call, Daniel Schulman, CEO of PayPal, gave us some updated usage data. Schulman reported that Venmo processed nearly $3.2 billion in payment volume in Q1, up over 150% from last year. And, Schulman stated that Venmo is "on track to expand to more merchants and open the service to our full Venmo customer base in the second half of this year."

On a personal note, I dug into my personal Venmo usage statistics. On average, I use Venmo 1.8 times per day to cover everything from cable bills to rent, to beers, to lunch. Venmo has made it virtually impossible for its competitors to create a sticky mobile payments application. Venmo's adoption and social presence has created a huge barrier to entry for oncoming competition.

Venmo Opens the Door for Merchants

When I wrote my last article, Venmo was only available for consumers. In July 2015, I wrote:

Venmo could eventually offer a merchant facing product. Venmo could eventually collect payment processing fees from merchant clients. I've actually heard of merchants accepting Venmo payments. But today, it doesn't look like Venmo supports a sophisticated merchant payment processing system. But when that day comes, Venmo could make money off processing payments for merchants.

In January of 2016, Venmo launched a merchant facing product as I predicted. It made it possible for app developers to integrate Venmo payment functionality into their mobile applications.

From the start, Venmo made it possible to order food and even purchase event tickets. Since then, it has even released a Developer API for app developers!

The integration makes it easy for consumers to pay app developers. And, Venmo stands to take a cut from every single transaction. Even large companies like Papa John's are accepting Venmo payments. As described on the Venmo Developer API website, Papa John's uses Venmo's deep integration to help their customers split pizzas like pros. Once you buy pizza and snacks for your crew, you can connect to Venmo, select your friends and request money from them as you checkout.

Venmo's Future

Venmo's payment volume and user base will continue to expand with little marketing from parent company PayPal. Venmo has replaced cash for me, and most of my peers.

What we should really watch is merchant adoption in brick-and-mortar retail stores. Venmo is already on its way into mobile applications. But soon, I bet we will begin seeing Venmo is traditional retailers too. I bet that Venmo will begin competing directly with Apple Pay (NASDAQ:AAPL).

Conclusion

Venmo has come an extremely long way over the last year. It is hard to quantify the long-term value of Venmo inside of PayPal's portfolio. That said, Venmo and PayPal are the best vehicles for exposure to the mobile payment revolution. And, Venmo and PayPal offer exposure to the unbanked and underbanked thesis.

I am remaining long PayPal stock as I believe PayPal is uniquely positioned as a technology focused financial services company.

Disclosure: I am/we are long PYPL.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.