Venmo's new rewards cast a wide net to spur use

PayPal is adding rewards to its Venmo credit card in a way that seems to echo Apple's strategy with Apple Card.

Apple Card originally tied rewards to the Apple ecosystem, and has been steadily adding retailer rewards since its launch. Venmo Rewards will initially start slowly, in offering limited-time offers of 5% cash back at Target, Sephor, Chevron and others, and add new rewards in the future.

It is likely PayPal is seeking to bolster its Venmo offerings by first continuing to build up transaction volume and payment amounts.

Andrew Harrer/Bloomberg

PayPal launched its Mastercard co-branded Venmo card in June 2018, mostly as a means to link Venmo accounts to retail payments, but also as a way to reload Venmo balances through ATMs.

The move to add Venmo Rewards this week and also Venmo Payouts for business owners gives PayPal a competitive answer to the Apple Card rewards that flow into Apple Pay Cash.

One of Apple's key talking points for its Apple Card has been the cash-back rewards that automatically go into the user's Apple Pay Cash account. It is easy for the user to watch the dollars grow in the Apple Cash account on display in the app.

Since the Apple Card's launch, Apple has enjoyed a surge in Apple Pay and Apple Pay Cash usage. The company has added a growing range of rewards to its card, while also allowing transfer of Apple Cash to a Visa debit account for a fee.

PayPal can also pitch Venmo Rewards as a way for merchants to connect more closely with customers as they move to mobile payments, said Maria Arminio, president of Avenue B Consulting Inc., a Redondo Beach, Calif.-based payments management consulting firm.

"Merchants are trying to find any way they can to create stickiness, and when you put in an intermediary in the middle of the payment environment, it removes them one step further from the consumer experience," Arminio said. "But I think the move on the rewards or loyalty front is a way to get merchants re-engaged in the payment process in that it is something that makes them that much closer to the consumer."

Ultimately, merchants are "looking for ways to get them back into the payments play again" and the Venmo Rewards could help steer that, Arminio added.

The creation of rewards and business payouts could give Venmo that lift in transaction volume, thus giving PayPal some more options to contemplate as the company continues to devise features and partnerships that could result in the P2P service generating revenue — a bottom-line boost that Venmo has not yet delivered, even though PayPal reports a nearly $400 million annual revenue run from Venmo.

The numbers show that Venmo use has been growing. Last week, PayPal noted a 64% increase in transaction payment volume year-to-year to $27 billion during the third quarter of 2019.

Cash-back is deposited directly into the user's Venmo P2P account. Users can track the rewards amount for each transaction in the "My Feed" section of the Venmo app. The Venmo Mastercard is issued through Bancorp Bank, but Bancorp is not affiliated in any way with the rewards program.

PayPal is introducing Venmo Payouts at the same time, providing another channel for businesses to directly pay consumers or sellers through Venmo for things like rebates and rewards. It would complement the PayPal Payouts option, which the company says thousands of merchants already use. Venmo Payouts is free to consumers receiving money into their accounts, while merchants would pay a small fee for using the Payouts API, PayPal has said.

PayPal earlier this month revealed its plans to launch another Venmo credit card in the U.S. during the second half of 2020, co-branding it with Synchrony.