Venmo rich

Graphic by Jason Hu

Two people I know have thrown most of the pre-games for my friend group since freshman year. They open their suite to around two dozen friends on a near-weekly basis, setting up their common room and cleaning it each time. They buy the alcohol, and though they beg friends to bring cups and chasers, they usually buy those too. And they do it all gladly out of the goodness of their heart, and without significant personal cost, because at some point during the zenith of the pre-game, they cut the music, get on an elevated surface, and shout: “EVERYONE VENMO ME.”

Usually, I took out my phone, opened Venmo, and complied. But slowly I realized that, first, I had no idea how Venmo works––how the click of a button sends my money to someone else remained a mystery––and second, how unquestioned this ubiquitous social phenomenon remained. We use Venmo partly as social vernacular (both a verb and a noun) and partly for sheer practicality, but there there seems to be a collective, tacit agreement to take Venmo’s functionality at face value, without probing into what it does with our money and our habits.

Venmo was founded by two Penn roommates in 2009 hoping to harness technology to split bills more efficiently. The company grew independently until 2012, when it was purchased by a payment software company for $26.2 million; that company, Braintree, was in turn bought by PayPal in 2014 for $800 million. An important detail for understanding Venmo: it is not like a bank, nor is it like a credit card company. Venmo is simply a money services business (MSB), an amorphous grouping that leaves Venmo outside the jurisdiction of the federal institutions, like the FDIC, that traditionally protect consumers. Venmo’s only requisite registrations as an MSB are state licenses permitting Venmo to conduct money transfers; the majority of these licenses were secured by and belong to PayPal, meaning that Venmo technically operated illegally before securing them.

Also worth understanding is Venmo’s business model. Though it charges a 3% fee on credit card transactions––a standard practice among similar services––it swallows further losses from satellite charges around debit card and bank account transactions, too. However, when your money is floating as Venmo balance, the company holds it in banks, earning interest as it sits. In the words of Teddy Shim, BR ‘18––who started his own payment company and explained Venmo’s ins and outs to me–– “think of Venmo as a giant bank account with tiny accounts for users.” As such, Venmo is incentivized to hold funds for as long as possible (in case you’ve ever wondered why your balance can take a few days to reflect transactions, that’s why––and also because Venmo has to wait for the Federal Reserve to move money, which it does in batches). Despite this palliative, Venmo still bleeds money; its long-term strategy is to promote itself as a direct payment option to vendors––which it is unveiling next year––and charge the vendors a fee, as credit cards do. Venmo’s unique vulnerability to fraud through the practice of chargebacks is another reason the company is not currently profitable. Chargebacks––when a customer reports a fraudulent transaction on their card––come at the vendor’s expense; credit card companies and banks value their customers, so they typically fulfill the chargebacks, and when the transaction is peer-to-peer, Venmo takes the brunt of the blow. The 3% credit card fee––the only visible fee Venmo extracts from users––is really chargeback insurance. This is not to say your money is jeopardized through Venmo, because apart from shady customer service dealing with past hacks, it’s not, though Venmo insures nothing; it would just be very simple to rip Venmo off.*

This summer, PayPal’s CEO elucidated that “the secret sauce of Venmo is turning a transaction into an experience.”  “Experience,” however, both overcomplicates and undersells the role of Venmo on a college campus. Venmo changes the way that we treat money, at least in small quantities, which is part of its unpalatability. I’ve heard Venmo balance referred to as “fake money” repeatedly, and this makes sense:other forms of intangible currency are valued less than cash as well. Florian Ederer, a professor of economics of the Yale School of Management, pointed me towards an MIT Sloan School of Management study from 1999 corroborating that spenders do tend to value tangible money over intangible currency. The experiment pitted Sloan students paying for an auction purchase through a credit card against those paying through cash; the credit card group bought more than twice as many tickets as the bidders paying cash. I would rather not be reckless with my money, yet the streamlined nature of the app engenders inattention, especially when used among like-minded peers.

Ederer believes that the Venmo user base––which is 80% millennials, an incentive for companies to dodge Venmo’s no-ad policy––skews young in part because of the traditional “stigma to not talk about money.” Matters involving analog money are typically kept private, and older folks are not keen to use an app that forces you to caption your transactions. However, using Venmo can be interpreted as a form of a proven consumer behavior: conspicuous consumption. Flippant Venmo payments with garish captions aren’t that different from “throwing dollars at the club,” Ederer says. Are we comfortable using Venmo because we’re already comfortable spending money and have gotten used to having people know that we are spending money? Relative privacy is assumed when it comes to other financial transactions, but Venmo users seem at peace forfeiting that expectation.

As Caroline Sydney, SM ‘16, elegantly put it in her own Herald op-ed about Venmo, “it’s not enough to share the check for dinner––the fact that the check was shared must also be shared.” Though you can also make transactions private by default in the settings––which I and most people don’t––Venmo is a powerful form of social media. A friend of mine, who understandably wishes to remain anonymous, confessed to using Venmo to “stalk” her ex-boyfriend. By examining his transactions and captions, she could roughly tell what he had been doing and with whom. “On my ex’s profile I saw a string of transactions between him and another girl with whom I’d seen him out frequently in public. They stung when I saw them, for sure, but then I knew it was time to move on.”  A user’s Venmo history (when public) seems to offer an incontestable digital paper trail, though this doesn’t stop minors from captioning transactions with beer emojis, drug references, or potential threats to national security; two developers with a sense of humor built Vicemo, a website that until five months ago compiled (and linked!) all transactions whose captions included a reference to drugs, alcohol, or sex.

Intra-Venmo etiquette also appears to be unique. Captioning comes with the expectation of humor, turning Venmo feeds into a list of inside jokes and wordplay. Just as some people carefully curate their social media persona, so do people indicate their social strata through references to partying as well as through the spending itself.

Also, looking back at my last twenty Venmo transactions, only six were charges. We are clearly still not wholly comfortable demanding money from our friends, though I am a staunch advocate of embracing Venmo charges as the least awkward way of reminding friends to pay you back.

It is unsurprising that this app created by college students is so prominent in college life. Venmo exists in our lives as a unique combined tool of personal finance and social interaction, slipping through our critical consciousness even as more of our money moves through its network. Perhaps what is remarkable is not the blend of money and social media, but that we don’t think that is weird at all. Regardless, the way that we use the app merits further scrutiny, especially as Venmo makes its push towards a relevance beyond college pre-games. I have my hesitations about Venmo’s infrastructure, and about what our collective inattention says about our relationship to money and technology, but nothing I learned overcame the overwhelming practicality and ubiquity of the app; the next time my friend cuts the music and asks me to Venmo him, I know I will.


*This is fraud, don’t do this.

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