In July I wrote an article titled PayPal: Venmo Keeps Growing in Q2 following the company's second quarter results. In the article, I highlighted the momentum behind PayPal's (NASDAQ:PYPL) mobile payment application Venmo. If you are not familiar, Venmo is the leading mobile payment smartphone application for Millennials. PayPal acquired Venmo through its 2012 acquisition of payments company Braintree.
I've written about mobile payments for some time here at Seeking Alpha. Mobile payments is the way of the future and I find myself using Venmo at least once per day. Here are some of my favorite statistics:
- 87% of the U.S. adult population has a mobile phone
- 71% of mobile phones are smartphones
- 39% of smartphone users have used their phones for mobile banking in the last year
- 67% of the unbanked population has access to mobile phone
Mobile payments are making payments easier while helping to bank the unbanked population in the United States.
In my article from July, I predicted that Venmo would be rolling out an in-store merchant facing product this year. Earlier in the year, Venmo started allowing users to use the application in other applications including Parking Panda, Priv, Wish, Box, App Market, and Pashmark. Mobile application payments are great, but not nearly the opportunity of in-store Venmo payments.
As a dedicated Venmo user, I know that I would use the in-store payment feature if available. And guess what? In early September, parent company PayPal announced that it entered into a partnership with payments giant MasterCard (NYSE:MA). This deal follows a deal from July where PayPal including Venmo, partnered with Visa (NYSE:V).
The MasterCard deal means that PayPal will no longer need to pay a digital-wallet fee to MasterCard. And, among other things, Venmo users can now make instant transfers with MasterCard Send, rather than waiting a few days to receive withdrawals.
However, the most exciting news wasn't initially reported by major press. The most exciting news came from Quartz who was able to confirm that:
Venmo and its parent company, PayPal, are adding in-store payments to their mobile apps in the first half of 2017, a PayPal exec has confirmed to Quartz. The in-store digital wallets will use near field communication (NFC), similar to Apple Pay and Android Pay. The digital wallets will be available first on Android because Apple's NFC chip is closed to third-party developers. Jim Magats, PayPal's head of global core payments, tells Quartz that PayPal is in discussions with Apple to see how they can work together in the future, but declined to comment further.
This is exciting news for PayPal shareholders and Venmo users alike. While the in-store payments rollout may not be needle moving from the beginning, I believe in the long term potential of Venmo. In the second quarter, Venmo processed over $4 billion to person-to-person payments, roughly 140% growth from the second quarter of last year. And, up from $3.2 billion in payment volume in the first quarter of 2016.
For reference, Venmo does not currently charge users to make P2P payments using a debit card or bank account. Venmo charges users a 3% fee when making P2P payments using a credit card. That said, as Venmo rolls out more merchant facing options monetization potential will grow. Venmo will be able to charge merchants a processing fee to accept Venmo as payment.
Over the weekend I was playing around with one of my favorite tools, Google Trends. I ran a Google Trends search for the keyword "Venmo". Google Trends shows you the relative search interest of keywords over time. Here is the output for the keyword "Venmo":
The picture here is pretty clear. Google search interest for the keyword "Venmo" is currently at 100, or an all time high.
PayPal is a long term investment in my portfolio. I believe in PayPal's core product offerings, and the long term potential of Venmo. I believe the market in underpricing the long term potential of Venmo. It is too soon to put a hard value on Venmo, but first hand I've witnessed Venmo become the leader in Millennial P2P payments.
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.