How Safe Is Venmo and What Are Its Fees?

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What Is Venmo?

Venmo started out as a free-of-charge peer-to-peer (P2P) payment app available for iPhones and Android phones. That service is still free, as is using Venmo to pay participating merchants, who now number in the millions.

Some other services carry a fee. Payments that go through a credit card account rather than a linked bank account or the user’s Venmo account incur a 3% fee. There also are miscellaneous fees for transferring money instantly from Venmo to a bank and for depositing checks.

Venmo also issues a debit card and a credit card which are accepted at a growing list of local and national retailers. Those products carry fees.

Key Takeaways

  • Venmo got its start as a peer-to-peer payment platform with social network features.
  • That original peer-to-peer function remains free (as long as you don’t use a credit card to pay).
  • Venmo can now be used to pay millions of retailers through the app or through a Venmo-branded debit card or credit card.
  • Some features such as instant money transfer or depositing checks carry fees.
  • Merchants who accept Venmo pay the bulk of Venmo’s fees.

How Does Venmo Work?

After downloading the Venmo app from the Apple Store or the Google Play store, users are given options to link their Venmo accounts to a credit card, debit card, or checking account. Once enrolled, a Venmo user can instantly begin exchanging funds with any other Venmo user.

For peer-to-peer transactions, Venmo is a middleman between the accounts of two users conducting a transaction. For example, say Sally agrees to sell Mary a bracelet for $50. Mary sends Sally the funds via Venmo, which then raises the balance in Sally’s Venmo account by $50 while reducing Mary’s Venmo balance by the same amount. Neither pays a fee.

In this way, a Venmo balance is essentially a virtual ledger that represents funds changing hands, within the Venmo platform. Until Venmo transfers the money into the recipient’s bank account, it isn’t technically in that user’s possession.

How to Send or Request Money

Money can be sent or requested by tapping the pay or request button in the Venmo app and then entering the other party’s email address, phone number, or username. If you are the person receiving funds, you can either keep the cash in your balance or transfer it to your linked bank account. Using Instant Transfer rather than the traditional slower delivery incurs a fee.

Money can be added to your Venmo account from your bank as well as from a debit card.

You can make payments through the app 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. If the transfer amount is equal to or less than your balance, the funds stored on the platform will be used.

There’s no fee for making a payment unless you use a linked credit card.

What Are Venmo’s Fees?

Opening a Venmo account is free and there are no monthly fees.

As noted, a simple Venmo transaction from a user’s bank account, debit card, or Venmo cash balance is free of charge. If a credit card is used to pay, Venmo charges the sender a 3% fee.

Other services carry additional charges:

Instant Transfer Fees

You can Instant Transfer money from your Venmo account to any U.S. bank account or participating credit card account for a fee of 1.75% as of June 2022. “Instant” means 30 minutes or less in this case.

You can avoid this fee by choosing the standard option, which is free and takes three to five business days.

Credit Card Charges

Venmo introduced its own credit card in 2021, and it carries a variable but steep interest rate just like most other credit cards. The interest rate as of June 24, 2022, is 11.99%-20.99%, depending on the credit rating of the applicant.

Cash advances cost the greater of $10 or 5% of the amount. Balances on cash advances carry an APR of 20.99% plus the current prime rate.

The credit card comes with a cash-back feature of 3% on your “top spend” category, 2% on your second most-used category, and 1% on everything else.

You can use your Venmo debit card free of fees as long as you don’t use it to withdraw cash from an out-of-network ATM and refill it only from your linked bank account or your Venmo balance.

Debit Card Charges

The Venmo debit card, issued in partnership with MasterCard, is refreshingly free of the miscellaneous fees charged by some debit card issuers.

ATM withdrawals are free from the MoneyPass network but cost $2.50 from an out-of-network ATM.

There are no annual or monthly fees, processing fees, or interchange fees, Merchants pay the transaction fees.

How Long Does It Take to Send and Receive Money?  

Any money sent from one Venmo user to another should appear immediately in the recipient’s account. That’s free.

For external bank transfers, standard three-to-five-day delivery is free but Instant Transfers cost 1.75% of the amount being transferred.

If you add funds to your Venmo balance from your bank account, it can take three to five business days for the transaction to go through.

The Social Side of Venmo

Venmo has dominated the P2P payment market by making the transfer of funds a fun and interesting exercise. Users can jazz up the exchange by using emojis to describe their payments or requests. For example, if one friend fronts his pal the cost of a glass of wine, the friend can issue a Venmo payment, adding a wine glass emoji as a playful gesture.

“This takes the awkwardness out of asking your friend to pay back their portion of the bar tab, marrying the social element and the financial element,” explains Venmo spokesman Josh Criscoe.

How Does Venmo Make Money?

Venmo derives a significant pot of revenue from the per-transaction fees that it charges merchants. Thanks to PayPal’s infrastructure, Venmo is compatible with at least two million merchants.

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. This function has helped Venmo expand beyond its exclusive P2P platform, allowing customers to transact directly with online retailers and brick-and-mortar establishments.

Venmo Merchant Fees

Venmo charges merchants a 1.9% fee, plus 10 cents per transaction. Companies are willing to pay these rates due to the number of new customers Venmo brings to their doors. Venmo also offers participating merchants a higher social media profile.

“Partnering with Venmo is like partnering with a credit card processor, but with much more upside,” says consultant Richard Crone. “Retailers spend a lot of money trying to get you to like them on Facebook and follow them on Twitter. But they could get these things for free, as a byproduct of allowing Venmo payments. People can see where their friends have been and what they’ve been buying, which turns users into advertisements for businesses, among a highly desirable target demographic.”

Venmo Roots

Founded in 2009, Venmo began as a text message-based payment delivery system. In March 2012, the company introduced an integrated social network to capitalize on the growing P2P economy.

Less than six months later, Braintree, the mobile payment system utilized by Airbnb, Uber, and other e-commerce giants, acquired Venmo for $26.2 million. Less than a year after that, Venmo enjoyed a substantial boost in users when eBay acquired Braintree for $800 million and made it part of its PayPal subsidiary.

PayPal Holdings Co. is now a separate public company.

Is Venmo Safe?

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.

Venmo uses data encryption technology to protect users against unauthorized transactions while storing user information on servers in secure locations. The mobile payment service also gives users the option to log out of lost or stolen phones and to set up personal identification number (PIN) codes for mobile applications.

Venmo has taken measures to protect its users from theft. However, your account still could be vulnerable if you share your password, lose your phone, or fall victim to a scam.

Unfortunately, hackers and scammers have been able to circumvent these safeguards.

After gaining access to a user’s account, hackers can easily transfer the user’s Venmo balance to a new bank account. And by changing the user’s linked email address, hackers can reroute a user’s transaction notifications, leaving them in the dark until the bank finally notifies them of balance changes long after thefts occur.

Regulatory Investigation

In February 2021, the Consumer Financial Protection Bureau (CFPB) began investigating Venmo’s treatment of scam victims, following complaints that the payment app had been threatening to send debt collectors to their homes.

Venmo Pressured to Clean Up Its Act

Venmo has been criticized for its security, slow customer service responses to breaches, and failure to protect users’ privacy. These complaints have emphasized the app’s shortcomings, On the positive side, they have also forced the company to take measures to prevent future slip-ups and serve its customers better.

One notable settlement was reached in 2016, regarding a complaint from Texas Attorney General Ken Paxton accusing Venmo of negligent privacy, safety, and security practices. The settlement included a $175,000 payment to the state as well as reforms to these practices.

In February 2018, Venmo reached a settlement with the Federal Trade Commission (FTC) concerning the company’s failure to disclose information to consumers about privacy settings. The FTC also found the company in violation of the Gramm-Leach-Bliley Act (GLBA) Safeguards Rule, which requires financial institutions to implement measures to protect the security, confidentiality, and integrity of customer information.

As part of the settlement, Venmo is subject to biennial third-party audits of its compliance efforts for 10 years. Violations of these terms could result in a civil penalty of up to $41,484 for each one.

How to Protect Yourself With Venmo

Melissa Ling © Investopedia, 2019

Users can take the following precautionary measures to combat hacking:

  • 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. Venmo will never ask you for this information and urges users to send an email to [email protected] if confronted with suspicious activity.
  • Change your setting to “private” to cloak your transaction history. Otherwise, other people, including strangers, will be able to view details of your transactions by clicking on your profile.

In 2021, Venmo ditched its controversial global feed, which publicly listed all transactions made by users who failed to change their default settings to private.

What Are the Risks of Using Venmo?

Like other online applications, there is a chance that your Venmo account could be hacked and your balance emptied.

Ways to avoid becoming a victim of theft include making sure that you don’t share your account information and password, logging out of your account when you’re not using it, and refraining from storing large amounts of money on Venmo’s platform. Also don’t click on emails that might be pfishing expeditions.

Is Venmo Insured by the Federal Deposit Insurance Corporation (FDIC)?

Unlike U.S. bank accounts, Venmo balances are not insured by the Federal Deposit Insurance Corporation (FDIC). This means that if Venmo goes bust or somehow loses your money, you won’t automatically be reimbursed.

That suggests that Venmo users are better off keeping little or no money in the Venmo account and keeping it in the linked bank account where it can be tapped as necessary.

Is Venmo Free?

Venmo is free to use for its original function, which was to send and receive money from friends and associates. It’s also free to use it to pay participating merchants, who now number in the millions. One word of caution: Don’t use a linked credit card. Pay through your linked bank account or Venmo balance to avoid a fee.

Otherwise, the merchants pay the fees. Venmo takes a cut of 1.9% and 10 cents from every business sale transaction, (Transactions among friends are free.)

Venmo doesn’t charge annual or monthly fees or make customers pay for basic services, including sending money from a linked bank account, debit card, or Venmo balance,

There are other fees for additional services, including using Instant Transfer to send money from Venmo to a bank or depositing checks to Venmo.

What Is the ‘Venmo Tax?’

The Venmo tax is relevant to merchants who accept payments via Venmo. Starting with the 2022 tax year, merchants who receive more than $600 via payment apps will receive a 1099-K form listing the payments as taxable income.

Can You Buy Cryptocurrencies on Venmo?

Yes, you can now buy virtual currency on Venmo. However, Venmo isn’t the only place where you can buy cryptocurrency, so be sure to compare its capabilities, choices, and pricing with those of other exchanges before opting to use this service.

Do I Need to Add Money to My Venmo Balance to Make Transfers?

No, it’s not necessary to add funds to your balance to make a payment. Each Venmo account is linked to the user’s bank account to facilitate simple transfers between the two.

If you want to send money via Venmo but don’t have the necessary funds stored in your Venmo account, the payment will be taken from your bank account instead.

The Bottom Line

Over the course of its existence, Venmo has become one of the most popular peer-to-peer payment platforms, eventually branching out to merchant services and offering its own branded credit card.

While Venmo is easy to use, its users are still vulnerable to hacks and cyber theft. Use Venmo with the same caution that you would with any other online payment platform, including monitoring transactions and changing passwords regularly.

Venmo offers a free platform for transferring money between private parties, with options to fund transactions via credit card for a small fee. It’s also free to pay for transactions using Venmo (but not tapping into a credit card.)

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