Credit Cards in Crisis, Disappearing from the U.S? What is Rapidly-Spreading Mobile Payment Service “Venmo”?
With the extensive use of credit cards, we all know that the United State is a “cashless economy”. However, the electronic payment service (mobile payment service) using a smartphone is widely spreading in the United States. Some people even predict that credit cards will disappear. Why is the mobile payment service spreading rapidly? I will look into the background as well as the reasons why credit cards exist.
Mobile Payment Service Spreading in the United States. A Feature Associated with Social Networks Is the Conclusive Factor
Wiring money between individuals using a smartphone is widely spreading mainly in the United States and Europe, and Wall Street is no exception. The phrase “Just Venmo me” is now accepted in everyday life, and I often come across a phrase “cash, check, or Venmo” in communication such as conversation or text messages.
Venmo is an app which allows users to transfer money or make a payment between them using a mobile device such as smartphones and tablets. Anyone can download it easily.
The founders, Kortina and Ismail were roommates at university, and the idea of starting this business came up one day when Ismail sent Kortina a check.
It is simply a norm in the United States to pay back money borrowed from a friend with a check. It is, however, a hassle to write a check and having to to go to a bank to cash the check after receiving it.
Basically, the concept is to solve these hassles using a smartphone, but the secret of its popularity exists deeper than that. That is, a feature of “splitting a bill”.
Students and working adults alike often go to restaurant with friends and colleagues. Venmo incorporates the “splitting a bill” function so that users do not need to worry about the numbers and their fraction of the bill.
What is more innovative is that Venmo is linked to social network services. Users can share where and what they did with their friends and know where and with whom their friends went out to eat, or where they went for a trip. Such “I-feel-connected” state attracted young people, mostly millennials.
Over Two Million Stores Accept “Payment Service”
Venmo was founded in 2009 and was acquired by Braintree in 2012. Then, PayPal acquired Braintree in 2013. The company name remains the same after the acquisition as a branding strategy.
Transaction volume in 2013 was $500 million, but Venmo processed $8 billion in payments volume in the April-June quarter of 2017, which is a dramatic increase.
Venmo requires only two items – a bank account and smartphone, so users can start easily. The transaction fee is waived if users do not use their credit cards, which helped Venmo spread widely.
However, Venmo cannot make money if it is free.
Venmo was just a convenient app, but what Venmo was waiting for was a “payment service”, which started in 2016. Venmo started a service allowing users to send money to affiliate stores, and is paid a few percent commissions from Venmo.
Presumably, Venmo users have increased to 3.5 million by providing a person-to-person money wiring service, which is basically free. Users are connected with social networks, so if they talk about a store as a hot topic in chat, the store can become popular in a second, which can also be a merit.
Venmo plans to enable individuals to use at almost every retail store where PayPal payment is accepted, and the number of the retail stores is already over 2 million.
U.S. Bank Alliance Launches Zelle Against Venmo
Banks are feeling uneasy about the “Venmo sensation”. If a person-to-person wiring money service is provided free, it will damage the revenue from transaction commissions in transferring money between banks. In addition, if Venmo handles a payment service, it will become a threat to credit cards issued by banks.
U.S. banks founded Zelle as they feel pressured against Venmo’s outstanding progress and started its service in 2017. U.S. major banks had already been providing their own money wiring service with a mobile device, but users are not really aware that they can use the service between banks as well, which is a basis to launch Zelle. They explain users can recognize more easily that they can send money or make a payment using a unified brand “Zelle”.
More than 30 banks have launched the Zelle service and reduce costs by providing the service in partnership with banks. Those banks offer free person-to-person transactions in wiring money to keep competitive with Venmo, and banks shoulder the costs equally. Zelle allows users to send money among individuals and make various payments.
It was obviously not a quick start for banks, but Zelle is backed up by major financial firms such as JPMorgan Chase, Bank of America, Citibank, Wells Fargo, and Capital One. Zelle has over 9.5 million users and overwhelms Venmo’s users in number.
What Are the Reasons Why Credit Cards Exist?
Zelle is fiercely running after Venmo, a mobile payment service which is known as Fintech’s biggest invention and has become a norm around Wall Street where I live.
As a mobile payment service is widely spreading, the existence of credit cards are now being questioned. Some people assume that credit cards will disappear in the not-too-distant future.
According to Accenture Consulting, 56 percent of U.S. consumers know a mobile payment service but only than 25 percent use the service on a daily basis. However, just like the internet and smartphones, this mobile payment service may spread as fast as a wildfire, as its signs has been already showing.
Meanwhile, a merit of credit cards unexpectedly lies in its “excellent low tech”. That is, they are slim, not bulky, and you do not need to worry about running out of batteries or damages when you accidentally drop your credit card to the ground or get it wet.
The most notable feature on credit cards is the loan. According to a survey by FRB (Federal Reserve Board), 44 percent of American households carried credit card debts in 2016, the average credit card debt was approx. $5,700 per household.
Accordingly, people can secure a credit line without collateral for an emergency, so that is the “reason why credit cards exist”.
If so, their rival is not Venmo but the online loan platform. An online loan service without collateral has started one after another, but its business is not doing well.
Credit cards are still necessary at this moment to make reservations for trips and accommodation and have many attractive benefits. In addition, providing an unsecured loan is a great service for consumers, and whether or not credit cards can survive might depend on whether or not rivals appear.