Venmos payments volume is thriving, but its monetization efforts are still developing

This represents a 26% year-over-year (YoY) increase and is consistent with the 25-27% total payments volume (TPV) growth it's seen in each of the last six quarters. Additionally, PayPal added 9 million net new active accounts in the quarter for a total of 286 million, which is up 17% YoY, decelerating slightly from the 18% YoY increase it posted in Q2 2018.

Venmo was a key part of PayPal's performance, growing its TPV by 70% YoY to $24 billion, gaining ground on Zelle.The 70% YoY increase is a deceleration from its performance in Q2 2018, when it jumped 78% YoY, but its growth this quarter remains promising given its magnitude.

It's also worth noting that Zelle, one of Venmo's chief digital P2P competitors, grew more slowly than Venmo, with its payments value rising 56% YoY to $44 billion; so, while Venmo is still behind, it's closing the gap in TPV.

Despite its strong growth, PayPal is currently unable to truly capitalize on Venmo since the service is still unprofitable and hurting the firm's take rate. PayPal's total take rate this quarter was 2.5%, marking at least six consecutive quarters of the metric decreasing or holding flat.

And its transaction take rate came in at 2.25%, dropping 13 basis points, with P2P's growth accounting for half this drop, CFO John Rainey said on the company's earnings call, making Venmo's growing volume a drag on the firm for the time being, though its impact is declining.

PayPal already has plans in action to boost Venmo's ability to monetize, but its goals haven't been fully realized yet. The firm has introduced Pay With Venmo, Venmo Card, and Instant Transfer to help monetize the service.

Instant Transfer is the biggest driver of Venmo's monetization as it currently stands. Venmo has been able to get approximately 15 million users to take part in a monetizable transaction — nearly 40% of the 40 million user base it reportedly had at the end of Q1 2019. Instant Transfer is currently Venmo's largest monetization contributor, with Pay With Venmo and Venmo Card accounting for approximately the other half, CEO Dan Schulman said on the earnings call. This may be the case because Instant Transfer is the feature most directly related to P2P transactions, and is likely in-demand from consumers.

But the company expects to rely more on Pay With Venmo over time — and convincing more merchants to accept the service in order to win over users will be key to success. Garnering Pay With Venmo engagement may prove difficult as it requires Venmo to convince consumers to use it as a payment method in an unfamiliar way. But Venmo has added Fandango, TodayTix, 1-800-Flowers, and more to the ranks of merchants accepting Pay With Venmo, according to Schulman, and enabling consumers to consistently pay with Venmo with a variety of merchants may convince consumers to use the feature more regularly, boosting Venmo's monetization efforts. Considering Venmo is particularly popular among younger consumers, it would do well to target merchants that appeal to this base, as that would maximize the impact of each new merchant it adds.