There has been an explosion of ways to pay our bills and to transfer money between accounts. Before computers, we used to look for our checkbook and pen. Write a check. Find an envelope and address it. Search for a stamp and mail it. When computers came along, we transferred money electronically by ETF, electronic funds transfer. Credit and debit cards also became common ways to pay bills. A debit card is like writing a check; money is taken directly from your checking account. A credit card is like taking a loan. We pay the loan back at the end of a short period, or we carry the balance forward and pay interest.
When computers and the internet became common, we didn’t even have to physically present our credit and debit cards or write a check. Type in the numbers, and we could make purchases online. Paying debts via computer and the internet is now the normal way to purchase goods and services and not the exception.
Consumers can now pay all types of debt and conduct nearly all of their bank transactions via non-bank methods. These methods, such as ApplePay, Amazon Pay, and Google Pay, rely on mobile devices or web-based applications and avoid physical methods of payment like cash, paper checks, and even credit or debit cards. With these payment apps, we pay using only our password. These mobile payment apps are designed to free us from cash and credit cards by allowing us to digitally transfer funds to family, friends, or merchants.
The Chinese were quick to latch onto these new payment systems. Many Chinese never had a traditional bank account, so it was easy for millions of Chinese consumers to use mobile payments. Almost everything they buy is bought through Alipay, the major app. Alipay users can deposit their money in a money market account that pays the investor higher interest rates than traditional bank savings accounts.
PayPal was the first payment service (born in 1998). It came into being as a payment method for eBay. It was so successful that eBay purchased it in 2002, but it became so large that it was spun off to eBay shareholders in 2015. It is still extremely successful and profitable.
With PayPal, no one sees a credit or debit card number, so the consumer has an extra layer of protection. We can easily transfer money to and from our bank account almost always without a fee. However, if you are a merchant and receive funds through PayPal, there will be a charge.
PayPal has diversified into other financial products and is beginning to resemble a bank more than a payment app.
Venmo was launched in 2012, targeting the case of friends splitting bills. For example, movie tickets, dinner tabs, rent, and concert tickets could be divvied up easily. It was designed to have the convenience of cash without the bother of carrying money around. It has become so popular that it’s used as a verb. “Venmo me $25.00.” (Note: the same thing happened to Xerox!). Venmo was eventually bought by PayPal. One big happy company.
Venmo, like PayPal, is linked to the user’s credit card, debit card, or checking account. But Venmo goes further than PayPal and tries to be a social network of friends. It is “designed for payments between friends and people who trust each other.” Transfers between Venmo accounts are instantaneous. Venmo, like PayPal, also offers traditional banking services, but in a more limited capacity than PayPal.
Users can jazz up the money exchange by using emojis to describe the transaction.
Venmo is free for personal use, and most businesses are forbidden to use the service. However, some services such as Uber and Lyft may be paid with Venmo. Venmo also offers a debit card that draws from a user’s Venmo balance. This allows a user to deal directly with merchants and retailers of all kinds.
Comparisons of Venmo and PayPal often conclude that Venmo is the superior service because of its ease of use. While that may be true, depending on the features demanded or the payment amount, PayPal could still be the better choice. Of course, you can hedge your bets and use them both.