Bringing Venmo to retail, PayPal yearns to unite its divided audience

PayPal's latest move to promote Venmo for retail payments may be the company's clearest admission of the limitations of the PayPal brand.

PayPal has a long history of buying brands that it could not defeat in the market, and Venmo is no exception. Other examples include BillMeLater (now PayPal Credit) and Braintree (Venmo's owner at the time of the acquisition). But PayPal never seemed particularly threatened in its primary mission of online and P-to-P payments — until Venmo came along.

Venmo somehow succeeded where years of upstarts failed, to the point where PayPal is now comfortable putting Venmo's own brand before its own. In the new setup, PayPal is testing dynamic payment buttons that swap in the Venmo brand for Venmo users when visiting merchant websites.

Andrew Harrer/Bloomberg

While this gives Venmo users the option of shopping at more than two million merchants, it also concedes that PayPal may never convince Venmo consumers to think of themselves as PayPal users. Despite the risk to the PayPal brand, the company sees this as a positive development.

"We're seeing in some instances that the appeal of Venmo has prompted some of the largest and most influential U.S. merchants to expand existing, or begin new, processing relationships with PayPal," Bill Ready, chief operating officer at PayPal, said in an Oct. 17 blog post.

As much as anything, it puts Venmo in the forefront of a promise that mobile payments has made since its inception — that it is easy for users to split the cost of purchases among friends and share payments on the Venmo feed.

"My kids go out and buy things jointly a lot, sometimes as a gift, or something for themselves, but someone wants to pay for part of it," said Steve Mott, principal of BetterBuyDesign, a Stamford, Conn.-based consulting firm. "It's very easy to do with Venmo, and that's a different lifestyle that the payments industry really hasn't stepped up to."

Venmo has grown to the point where the PayPal.me P-to-P service created two years ago to lure older age groups may not even be necessary. It appears PayPal realizes by leveraging Venmo and its infrastructure it is "creating a new conduit into the future of digital payments where it is more of a social interaction," Mott added.

And that also appears to be a major selling point for PayPal and Venmo as it expands retail reach. The move allows merchants to connect with a new audience of shoppers, many of whom engage with Venmo multiple times a day, Ready said in the blog post.

Much like PayPal's past development of One Touch payments for PayPal on merchant sites, the addition of Venmo capabilities will not require "any additional integration work on the merchant's part," Ready said. PayPal expanded One Touch to the web just before the company's split from eBay Inc. in 2015, a move that indicated PayPal was preparing itself to be far more aggressive in mobile payments.

PayPal is moving the merchant payment concept into place just before the holiday season. Shoppers use a Venmo balance, or linked bank account, credit or debit card to make payments through the app.

With more than five million users in place, Venmo has been considered the major P-to-P force in the market. PayPal is also promising to soon set up the Venmo network to allow users to instantly transfer money from Venmo to their bank accounts through eligible debit cards, providing faster access to funds for a 25-cent fee per transfer.

During its second quarter 2017 earnings report, PayPal said Venmo users sent $8 billion in money transfers during the quarter, more than twice as much as the mobile payment service accounted for at $3.9 million in the same quarter last year.

"For a lot of reasons, this is an interesting next step because there a lot of people using Venmo, and many would use it to make payments to merchants," BetterBuyDesign's Mott said. "Step by step, inch by inch, these guys are becoming the Switzerland of payments, as they intended to do."