Mobile payments pioneer Venmo was the brainchild of two University of Pennsylvania graduates who were freshman roommates in 2001: Andrew Kortina and Iqram Magdon-Ismail. The peer-to-peer startup was sold for $26 million to Braintree in 2012, which was acquired by PayPal a year later. With Venmo, users receive and send payments using mobile devices and transactions are part of a social network. Now the mobile payments space is heating up. Facebook’s Messenger offers payments, a consortium of banks launched Zelle, there’s Google Pay, and others. Venmo COO Michael Vaughan recently joined the Knowledge at Wharton show on SiriusXM channel 111, on location at the Wharton Global Forum in New York, to talk about why he believes his company will stay on top.
An edited transcript of the conversation follows.
Knowledge at Wharton: What’s been most interesting to you about the development of mobile payments?
Michael Vaughan: The big question we had when the founders were creating [Venmo] was, “Why is it so hard to send money in the U.S. [compared to other countries]?” We’re so far ahead in so many other ways, but in banking or payments, it seemed a lot harder than it should be. The idea we had back then when they created Venmo was that sending money should be as easy as sending a text message. If I can just pull up somebody’s name, send a text message and say, “Hey, meet me for lunch,” then it should be, “Hey, here’s that $5 for lunch.”
When you use Venmo today, it feels a lot like that. I think the surprising thing for us was that when you looked around, there’s no good reason why it shouldn’t have existed. Certainly, we could figure out the technology and how to move the money. There was not any really good reason, so we just went out and created it.
Knowledge at Wharton: How much of a challenge is it right now with so many new entries in this space?
“Sending money should be as easy as sending a text message.”
Vaughan: More recently, you have all the big players wanting to get into it. Particularly on the peer-to-peer payment side, just in terms of what often was a cash transaction or a check transaction, people didn’t really see that as a business opportunity. I think that was part of the problem. They were like, “If you can’t make a lot of money on it, then we don’t want to do it. We only want to do things that make money.”
We were looking at it very differently, which is that it’s much more about the experience on the peer-to-peer side of things that so many of them are doing now, primarily because Venmo opened their eyes to it. It’s a way to create engagement and get people comfortable with the idea of using their phone to pay for things and trusting an app to handle their payment credentials and financial credentials, and then expanding that experience. So, it’s all about that experience.
When you look at the new entrants today — entrenched players, banks and startups — [we believe] a rising tide raises all boats. The more people trust [mobile payments] because other players are doing it, the better it is for consumers. The more competition there is, the better it is for consumers. If there’s one big player in the long run, consumers aren’t going to get the best offering. So we see [competition] as a good thing, but there are aspects to Venmo where we think we’re always going to be the leader.
Knowledge at Wharton: What are those areas that you think you do better than anybody else?
Vaughan: Venmo is much more [than just payments]. We push the mechanics of payments to the background and focus on the experience. If you look at a lot of things, it’s about [being] faster. It’s a button. It’s easier. It’s slicker. Certainly, that’s part of Venmo. But Venmo’s also about the experience in connecting people to what matters to them most — to other people, to businesses, to other apps — and making that experience much more enjoyable. It’s simpler and in a lot of ways more fun.
Today you look at what happens on Venmo, and a large percentage of the payments are sent with emoji strings. Something as simple as that. It’s a lot easier for me to pay you back for the drinks when I can put in the beer emoji, or for dinner when I can put in the taco emoji and have a little fun with it. It goes back to the founding story of why isn’t it as easy — and in this case, as fun — as sending a text message or an instant message, and making payments feel more that way.
Knowledge at Wharton: When you think historically about banking, it hasn’t necessarily been a fun industry. You’re innovating, but you’re also disrupting the status quo in banking.
“People look at Venmo as an intimate social network.”
Vaughan: Yes, and I think that was part of what was holding it back. It was this belief that to move money, it has to be slow, it has to be hard, and it absolutely has to cost a lot. When you looked at the way the industry worked, that’s what it felt like. And if you wanted it faster, it had to cost even more.
We didn’t come from the banking world, so sometimes we take a fresh perspective on things. The payment has to be there. It has to be secure. It has to be safe. It has to be, in our case, instant. All of those for us are [non-negotiables]. But to us, the payment represents something else. You’re either buying something, sharing something or paying back somebody for something. That’s where we took the focus off the transaction and moved it to the story that’s happening around the transaction. I think that’s what gave us a different lens than any other player.
In a lot of ways, people look at Venmo as an intimate social network because it’s celebrating and representing what’s going on in their life, and not just a utility to move money. The utility to move money is simple, easy and fast, but it’s pushed to the background.
Knowledge at Wharton: What is the growth path for Venmo?
Vaughan: Last quarter, we processed in the U.S. alone more than $12 billion. One of the things we’re thinking about now is taking what people love about Venmo today and how do we give you more ways to use it and more opportunities to use it? For us, that is taking what historically for us had been primarily a P2P experience and expanding that where I can now pay merchants.
We’re part of PayPal. I can use Venmo to pay PayPal merchants. Instead of paying my friend back, I can now pay merchants. I can now pay inside of other apps. For example, I can pay GrubHub, which is one of the big food delivery services. Think about the Venmo experience where roommates order delivery and split it four ways. I can now use Venmo inside of GrubHub to pay for that. It pops up in my Venmo feed so that I can split it with my friends and then share it — all of that done instantly from my phone with two taps.
The thing we hear most often is, “Venmo saved my friendship with somebody, or my roommate relationship.” All of those situations where you make the run to Costco or you make that order from GrubHub, and your friend doesn’t pay you back, literally ruins that relationship. Now I send you a Venmo request and say, “Hey, you owe me money for the tacos.”
Knowledge at Wharton: How important is it for businesses to have an app?
Vaughan: It’s everything, and it may not end with the phone. You obviously have the [smart] watch and things like that. It’s about being connected to wherever and however people want to pay. That could be your car paying for things, the internet of things. Right now, I think it’s still primarily mobile. One of the things that Venmo had the benefit of was that we built it in the era of mobile. It started as a text messaging app, then became an app in the [Apple] app store and on Android.
“When you build a new [mobile] service, don’t assume people are going to go back to their computer keyboard. ”
You look at a lot of the original web companies, and they struggled in mobile because mobile became a build-on to their website. They always think about things from the perspective of somebody sitting at a computer, and then the other experiences are just new ways to get back to the computer. When you build a new service, don’t assume people are going to go back to their computer keyboard. Build it so they can use it anywhere they want to use it and be connected to it all the time. Make it so that it can be done on any device that they’re going to want to use it on, and then retrofit it back to the older technologies. It raises the bar on what it takes to make it a good experience.
When we were building Venmo, no one thought we could get somebody to enter their bank credentials or their card into their phone. We just held ourselves to a higher bar and then figured it out. Obviously, now people think it makes sense. But back then, people thought that was an impossible task.
Knowledge at Wharton: What about the security of using an app like Venmo?
Vaughan: With any app, security has to be first. But when you’re in anything financial, it’s even higher than that. So, it’s always present. It’s No. 1 in everything we’re doing in terms of security — protecting our customers, preventing bad activity from happening. Also, when you’re in financial services, there are regulatory obligations of making sure bad people aren’t doing bad things with your service to fund bad activities. You have a huge obligation, and you also have the privacy aspect of Venmo being a more social platform. Bring the two together, and it is front and center for everything that we do.
One of the things that people underestimate is the significance of a mobile device belonging only to them. We have all these new biometrics going into it. It’s a one-to-one relationship, so you can do a lot of things to really increase the security when your platform is mobile first. For example, we have something called two-factor authentication. If you sign into your Venmo account on a device that we haven’t seen before, we don’t let you in. We force you to tell us that you have the original device in your physical presence. You could get in with a log in, but we need to know that you have the physical device that you originally created it with. If you have that, then we allow you in.
We force that. That’s not even an option on Venmo. You can’t opt out of that. In a lot of ways, we’re creating a more secure environment than the old days of the web, where everyone shared a computer, it was password driven and things like that. I think there are opportunities to push that forward and get out of that mindset of username, password, log in on a shared device.
