I can see that headline running.
I can also see that being a strong differentiator in a competitive P2P payment space. Now, there have been some announcements stating that Venmo will be introducing their own credit card. To date, I have not seen that in my version of the app and I am not sure of the timing of that feature.
What I will be covering in this post is how I might introduce credit into the app; and, spoiler alter, it is not with a credit card.
Let's dig in...
If I need to send you money, I have options. That is good, for ME; for US. That is not so good for the individual apps. They are all fighting for largely the same audience.
Since their introduction, the market has responded with enough demand to create space for more than one major player. This means more and more people are using P2P payments. That is great for customer acquisition and continued growth. But, how do you stay ahead of the competition? How do you prevent your service from becoming a commodity?
The biggest battle is really between Zelle and Venmo, with Zelle reporting $39 billion in 2019 Q1 transactions and Venmo trailing with $21 billion over the same time period. That is a lot of money.
Now, what if you were tasked with growing those figures?
The first thing you should ask is what are we trying to grow and why? Revenue? Engagement? For the sake of this article that is what I am assuming.
What if you led the product team at Venmo? What if they brought you in and said how might we better compete with Zelle?
That is a good question.
But first, a brief history of Venmo.
Started by Andrew Kortina and Iqram Magdon-Ismail from University of Pennsylvania. The concept was originally for text message based payments but evolved into a mobile app. The inspiration was over splitting the bill for a meal.
There are a few things to take away from the above brief history. The first is that Venmo was created by friends that were scratching their own itch. It should be easier to split a bill; let's build an app for that. That is a key lesson that should be taken away from this story. The best product ideas come from solving your own problems. If you don't read another word and only get that out of this whole article, it was worthwhile.
The second thing to consider is that Venmo is owned by PayPal. The extent to which PayPal and Venmo have congealed is hard to know; especially from my standpoint. However, I do not think it is unrealistic to consider that if there is something new that Venmo wanted to introduce it would have access to the talent and resources at PayPal in order to make that happen.
These two points will shape the vision for a new service that Venmo would introduce to their clients; Spot, short-term, crowd-funded loans.
But why is that the direction they should go? Well, there is no way to Know. You will never KNOW. But there are signs that point to that being a worthwhile direction for them to pursue.
Let's explore...
As a product developer you have to know who you are, as a company, and position your product in the market to leverage your strengths. The Pragmatic Marketers refer to this as your Distinctive Competencies and it is important for a reason. I may not be a formal disciple of this framework but I can vouch for the importance of this in building your product road map.
Venmo is natively social. There is an entire social enterprise built into the app that turns transactions into stories about how you are spending your time and money and with whom you are spending them with. And all the emojis; everyone loves emojis.
In the screenshot above, you can see that people are openly sharing little stories. There are even like and comment interactions allowed on those transactions. This is the social aspect of Venmo that users have grown accustomed to. Keep this in mind.
Now, let's talk about Spot, the new short-term loan offering from Venmo. My thinking here is that there would be two aspects to this. As a Venmo user you could be a funder or a borrower.
Let's explain how the borrower feature would work.
I need to pay a bill.
I log into Venmo.
Tap that new payment icon in the upper right corner.
Find the recipient and enter an amount.
However, the amount I need to pay exceeds what I have available in my account(s).
Depending on the relationship that Venmo has with the banking platforms I see one of two things happening next.
If you enter an amount that exceeds your available account balance then you would get prompted with a notification modal that would read... the requested amount exceeds your current balance or something along those lines. That might not be possible as Venmo might not be able to check your balance and might only be able to send debits/ credits. If that is the case then there would need to be a prompt or icon added, like below, that would get users into the loans area of the app.
As you can see from the above screenshot a small credit card icon was added to the payment screen. How the actual application process or terms work are not really relevant for this exercise and take away from the main point here. You get it though.
I think of this form of borrowing as more like a cash advance than a credit card. Here is why.
The funding source for these short term advances would be other Venmo users. For instance, right now I have $400 in my Venmo account just sitting there.
What if there was an option to put that money to work?
What if I could make a small percentage return on the money that is already in the platform?
What if Venmo pooled that money together and used it as a fund to provide micro-lending to people in your network?
Here is how the cash flow might play out from both sides.
Venmo charges a percentage for extending the funds. It keeps a modest piece and pays the majority back to the Funders. In this example Billy and Mikey both made $8 in interest and Timmy made $4; in two weeks.
I could even see this being extended to include a network based algorithm, in so much as you can choose the tier of people you are willing to lend to and/ or borrow from. Lend only to friends, lend to friends and friends of friends, loan to anyone... I could see each tier having different rates and terms. It isn't that crazy.
You can almost think of it as P2P payments meets crowdfunding.
Another possible avenue to get more and more people to contribute to the fund is to leverage that as a social indicator within the application. See the below screenshot for an example of how this might be done.
The green icon (a credit card) in this mock-up shows that the first user on this list is a funder and more importantly, the others are not. I hypothesize that the funder badge would entice users that might be on the fence about contributing to give it a try, simply for the sake of having the indicator applied to their account.
Now, there are so many details and nuance that would obviously need to be worked out but let's test this solution against our areas of focus; increased engagement and revenue. Engagement would certainly go up because you are introducing a new value proposition in the app and new user stories for the funders and borrowers. Win-win! Now for revenues, if Venmo is keeping small percentages of all of these micro-loans then that would be a new revenue source with little to no cost; outside of the insurance required to hedge against bad loans, etc. To me, on the surface, this approach would help increase engagement and create a new revenue stream. Coolness.
Full disclosure here, I have never worked in the financial industry or more specifically with a P2P processing system. I know it isn't this easy. I know there are risks and limitations and regulations. I do, however, know that crowdfunding exists.... P2P payment systems also exist. They are not individually impossible. That breeds hope that they could be done together.
This might be a terrible idea. This might be a great idea. It doesn't really matter. The real purpose of this post is the creation and articulation of an idea more so than the validation of its greatness. What was the last idea you had regarding data, technology or products? Who did you share it with? I would love to hear about it.
As an end user and product person, exploring different use cases and possibilities that are outside of my normal spectrum is a very healthy way to keep my mind and mental models fresh and active. And I encourage you to do the same.
Think like a maker.
- Nate