In these cases, Venmo pays the processing, issuing, and acquiring costs to make whole the funds sent to the receiver. Venmo, on the other hand, doesn’t charge fees to users who pay using their Venmo balance, bank account, or major debit cards. Square Cash transactions between friends are free, but only work with debit cards. PayPal transactions made to or from a bank account or PayPal balance are free, but if payments funded by debit or credit cards-even to friends-carry a 2.9 percent transaction fee. The decision was no doubt driven by the competitiveness of the P2P market, and it’s paid off: The lack of fees helped give Venmo an edge over its rival, and now-parent, PayPal, and other peer-to-peer providers. So Venmo’s user fees, or lack thereof, amount to a business decision rather than a specific technical innovation. While it might feel different to consumers, especially those thankful for the lack of fees, but they’re still relying on old standards in money movement, like credit and debit card-funded transactions and bank-to-bank transfers. In other words, while Venmo’s solution marked a huge step forward in peer-to-peer payments-as evidenced by its popularity, moving $1 billion in January 2016 alone-the company hasn’t invented new ways to move money. That’s because Venmo is largely dependent on existing payment infrastructure-and also existing fee systems. Venmo itself-like all P2P providers-has to pay transaction fees no matter what form of payment powers the peer-to-peer exchange.
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