How Does Venmo Work?

How does Venmo work? – a complete description of the app.

Have you ever had a deal with someone and at the end of it they say “I will venmo you?” You probably have. But do you really understand what the person meant? Well, if you don’t understand what that means this post might be very helpful.

Venmo is a social mobile payment platform that lets you send and receive money from people in your social network. It’s free to sign up and use, and there are no fees for sending or receiving money.

Venmo is one of the evidence that Americans has come to embrace digital payment with their full chest. In 2021 for example, more than 4 in every 5 (precisely 82%) Americans used digital payments. That is up from 78% in 2020 and 72% in 2016.

A key part of this digital payment revolution is the rise of mobile payment apps, like Venmo.Though as at today Venmo is available only in the U.S. yet it boasts impressive user base of more than 80 million users.

Today we shall explain in details how Venmo work, how safe it is and other benefits.

Table of Contents

What is Venmo?

Before we answer the question ‘how does venmo work?’ we need to first understand what the term venmo refers to.

Venmo is a mobile app that makes peer-to-peer money transfers fast, simple, safe and free (more on the free part later). The app is mobile-only, meaning you can’t send or receive money using Venmo on a computer (whether desktop or laptop).

The goal of Venmo is to help consumers navigate split checks and other situations where dollars need to change hands. A very good way of understanding Venmo is to see it as a social media app built specifically for payment. With Venmo, no one has to carry cash around, nor does anyone have an excuse to avoid paying their share of the bill when friends hang out, watch a movie on Netflix or use Uber.

Venmo is one of the product portfolios of Paypal.

To the main question – how does Venmo work?

Just like most other mobile payment platform you will need to link your Venmo app to a bank account to use it for transactions. The account could be savings or checking – it doesn’t matter.

So by connecting the Venmo app to your bank account or a credit or debit card, you can send funds to pay a bill or receive money by “requesting” it. While Venmo started out mainly been used between friends and family members, today it is also accepted by many merchants. In fact, you can use Venmo to pay for almost any service today. Be it a bill, a gift, donation or whatever. The major condition is that the person you are paying must have a Venmo account also.

You can also think of Venmo as a ledger that’s accounting for money going in and out via your use of the app. But no money actually changes hands. The entire Venmo transaction takes place between the two banks that are linked by the 2 parties.Each time you do a Venmo transfer your balace reduces by the exact same amount and that of the friend you transfer to increases by the same amount. Remeber, no charges are involved.

How Does Venmo Work? – As a Social App

Recall I said that Venmo is a social media app. Think of other social apps you know like TikTok, Facebook, Instagram and how they work. There are all build basically for fun and socail hook up. So Venmo also has its fun side. When you send money to your buddy, you can add an emoji along with the amount. The emoji could convey what the money is for.

Take Facebook for example, you can search anyone out and send a direct message to the person even if you aren’t friends on Facebook. Venmo works in a similar way. Though you can find anyone and pay them via Venmo, even if they are not your ‘friends’ but it is still important you add people to your friends before sending them money.

Adding them has two advantages:

1. It helps you ensure that you’re paying the correct person – Venmo will not refund you if you mistakenly pay to the wrong person.

2, Another advantage of adding friends to your list is that (as a social app) you can view each other’s exchanges when you scroll through your “activity” feed – though you can equally make those settings “private” if you don’t want people to see whom you’ve paid and what for.

How Does Venmo Work? – Account Set Up

To start using Venmo you need to first setup your account. And to do that simply follow these steps:

Download the app from any of the app stores depending on the type of mobile device you have (iPhone or android).
After the download you go ahead to sign up or create your account (you can sign up with Facebook or with your email)
Verify the account by entering your phone number – they will send you 4 digit verification code
Connect the app to your bank account or credit card by following the instructions on the app
Add your picture – this will make it easy for friends to identify you when they search you out
Add friends and start sending them money at will as it has become part of your mobile wallet

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How Does Venmo Work? – Sending Money

Sending money with Venmo is simpler than you may want to believe. It works with phone number and email address. All you have to do is follow the steps below:

Tap the pay button in the Venmo app
Enter the recipient’s email address,phone number or username
Select the amount you wish to transfer
Then choose how much you would like to send.
You will get an in app notification when the transaction is successful

FYI: If you’re sending more than $100, you will need to verify your identity by entering your social security number.

Also, you can make payments through Venmo without holding the necessary funds in your Venmo account. If a payment exceeds your current Venmo balance, the money will be taken from your linked bank account.

How Does Venmo Work? – Receiving Money

When someone send you money on Venmo you will get a notification (an alert) to that effect. Venmo gives you 2 options of what you can possibly do with the money you receive from Venmo:

1. You can keep it in your Venmo balance and use it for payment or purchases in the future

2. You can immediately transfer it to your linked bank account

How Does Venmo Work? -Who Can Use It?

Venmo has three main requirements for using the app.

To use Venmo one must:

Be resident in the United States
Have an active U.S. phone that can send and receive text messages using short codes
Be at least 18 years old (this is a requirement in most cases)

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How Much Does Venmo Charge For Transactions?

I earlier today you that Venmo is free – there are no charges. And yes, it is. But I also told you that there will be ‘more on that later’. So it is time we look deeper into the details of Venmo’s charges.

First Venmo has nothing like monthly or annual charges for using the app.

Next, Venmo does not charge at all for their basic and core services, such as:

Sending money from another person’s Venmo account
Accepting money that goes into your Venmo account
Withdrawing money from your Venmo account to your linked bank account
Making a standard transfer to your linked bank account – this takes between 3 to 5 days

However, Venmo charges for some premium features and other services, such as:

When you use your credit card to send money to someone – 3% fee
Using the check-cashing feature for faster deposits of payroll and government checks – 1% fee (with a $5 minimum)
Using the check-cashing feature for faster deposits of non-payroll and non-government checks – 5% fee (with a $5 minimum)
For instant transfer (within 30 minutes) of money from your Venmo account to your eligible linked debit card or bank account – 1.75% fee (minimum 25 cents, maximum $15)
For buying and selling cryptocurrencies – the charge ranges from 50 cents to 2.3% of the amount involved

How Long Does It Take To Send Money to Your Bank?

The time it takes for the money you are sending through Venmo to reflect depends on the type of transfer you choose – Venmo has different options.

Any money sent from one Venmo user to another Venmo user reflects in the recipient’s account immediately. And as you already know, there are no charges on that.

Standard transfers to external banks take 3 to 5 days to reflect. And this is also free of any charge whatsoever.

Instant Transfer to external banks reflects in less than 30 minutes. This is however not free, it costs 1.75% of the amount being transferred.

What Are the Dollar Limits for Venmo Transactions?

There is a sort of spending limit for certain services on Venmo. These limits applies majorly for person-to-person payments, purchases with the Venmo Mastercard, debit card, online and in-app purchases made with your Venmo account and purchases with an in-store QR code.

When you open a new Venmo account your combined weekly spending limit for all transactions is $299.99. That limit will continue to apply until you verify your account.

However, once you verify your account, Venmo limits automatically increases to:

$4,999.99 weekly transfer limit for person-to-person payments
$6,999.99 for combined weekly spending (both authorized merchant payments, debit card purchases and person-to-person payments).

Note that there are some one-time transaction limits that also apply. These include:

$4,999.99 limit per transaction on person-to-person payments
$2,999.99 transaction limit on merchant payments
$2,999.99 limit on Venmo debit card transactions.

There is also a restriction on how much money you can add to your Venmo account from your bank account. These include:

$1,500 per week if you account is verified and
$999.99 a week if you are yet to verify your account

Finally on this, there is also a restriction on cryptocurrency transactions. Your weekly limit for crypto purchases is $20,000. And in a month it is $50,000.

Hey, I didn’t say this – there is a minimum too.

For instant transfers the minimum you can do is 26 cents. Standard transfers however allows one to do 25 cents or less.

How Does Venmo Make Money?

In 2021 Venmo handled $230 billion in transactions and generated $850 million in revenue. Bulk of the revenue comes from the per-transaction fees that Venmo charges merchants. PayPal being the parent company of Venmo provides a solid infrastructure that makes Venmo compatible with at least two million merchants.

But, per transaction fees is not the only revenue source for Venmo. Another stream of revenue is derived from the “smart payment button” that can integrate into other apps for in-app purchases. For example, Uber allows its app users to pay for rides and Uber Eats using Venmo without leaving the Uber app. The cost can even be divided among multiple users via the Uber app.

Venmo also makes money from the Venmo debit card, which draws directly from a user’s Venmo balance. This card operates through Mastercard and can be used at any business that accepts Mastercard. It is this function that has helped Venmo expand beyond its exclusive peer-2-peer platform. And this now allows customers to transact directly with online retailers and brick-and-mortar establishments. Experts are of the opinion that this might be the future saviour of Paypal.

Is Venmo Safe?

My first thought is that 80 million Americans cannot be all wrong at the same time.

So generally speaking, Venmo is considered safe.

Venmo says it employs encryption to help protect your account information and monitors your account activity to help spot unauthorized transactions. Also, it says it stores your information on computer services in secure locations. You can even add an account PIN code through the Venmo app to further increase your account security.

In addition to all these, Venmo protects accounts with multifactor authentication. This works in such a way that sometimes when you sign into your Venmo account, you are asked to confirm your identity by entering a code that Venmo sends to your registered phone number.

A Caution Though

Venmo however cautions that the platform “is designed for payments between friends and people who trust each other. So as much as possible avoid payments for goods and services to people you don’t know, unless authorized by Venmo.”

To further improve security, Venmo now asks users to verify their identity through the Venmo app. Without verification, Venmo won’t let you tap into a Venmo balance to make payments, but you can still receive money and transfer funds to your bank account.

You’ll need a Social Security number or individual taxpayer identification number (ITIN) to verify your Venmo account.

Similarly, it is not possible for users to pick a public, private or friends setting for their friends list on the app. They can equally opt out of being seen on the friends lists of other Venmo users. All these help increase security from strangers who would otherwise be viewing your details.

Common Venmo Scams To Watch Out For

Informing someone by email or text message that they’ve won a prize from Venmo
Calling a Venmo user to obtain their account information (Venmo doesn’t do this)
Calling a Venmo user and pretending to be someone from Venmo tech support
Selling something to a stranger who tricks you into believing they’ve paid for an item or service when they actually haven’t
Direct hacking into users account
Gaining access to users phone (by supposed friends and family members).

All Internet-connected applications are vulnerable to security breaches. Therefore, Venmo and every other app that links directly to consumers’ bank accounts must be held to the highest security standards.

Knowing that scamers and hackers are unrelenting in their efforts, what do you do?

Do your best to protect yourself in addition to whatever effort Venmo is making.

And how do you do this?

Let’s take a look at key measures in the next section.

How to Protect Yourself and Your Money With Venmo

Users can take the following precautionary measures to tame the activities of hackers:

Ensure to verify your account using your social security number.
Never store large amounts of money in your Venmo balance.
Immediately transfer Venmo transactions to linked bank accounts.
Only use Venmo to exchange funds with people you know.
Beware of scammers sending emails asking for your password or other personal information relating to your account.
Change your setting to “private” to cloak your transaction history.

Does Venmo Offer a Credit Card?

Yes, they do. It now has its own credit card. The card was introduced in October 2020. It is a Visa credit card that provides 3% cash back on purchases. Cash back can be put toward cryptocurrency purchases without a transaction fee. The card doesn’t charge annual fees or foreign transaction fees.

Eligible Venmo users can apply through the Venmo app and get the card.