Look who is giving a Tough Fight to Starbucks’ Mobile Payments

Venmo successfully overtook Starbucks mobile payment app this quarter in terms of U.S. transaction volume as per recent estimates. The transaction volume reached $468 million in the second quarter this year.

This shows a 347% YoY (year-on-year) increase with an annual run rate of around $1.9 billion. Comparatively, Starbucks’ payment volume reached $413 million during second quarter with a 73% YoY increase. Here is an illustration showing the U.S. transaction volume comparison between the two apps: Source: Business Insider

Although one might speculate that it is not fair to compare Starbucks with Venmo. Venmo has quite a wider audience and is used for peer-to-peer payments unlike Starbucks app’s retail payments use. The apps can be perceived as worth benchmarking because both the apps are driving replacement of physical point-of-sale transactions.

Venmo has gained some prominent popularity over the past year. By simply loading the app onto your smartphone, user can to bank and credit-card accounts and link up with friends to send money on the go. It makes scenarios like splitting restaurant checks and paying rent quite seamless. Venmo charges a user just 3% for a credit card transaction.

The broader mobile wallet market was to slow to catch on with a wide audience. The rising use of peer-to-peer applications is improving prospects for apps like Venmo. The growth of Venmo can be attributed to PayPal which owns Venmo. PayPal has already made some foray into mobile payment innovation through acquisition of Braintree.

PayPal had unveiled One Touch PayPal for mobile payments which had evolved out of Venmo Touch. PayPal’s highly efficient payment system running in the backend makes it seamless to use Venmo. The simpler checkout process powered by PayPal has made it possible for Venmo to achieve such a high growth rate. The rise in online and peer-to-peer payments has fueled growth of applications like Venmo. As per a Nielsen report, about half of peer-to-peer payment users use apps for splitting restaurant checks. Paying for gifts and entertainment is also popular.

In U.S. alone, individuals exchange about $1 trillion. Mobile and electronic peer-to-peer payment applications are really making a dent in the market. The highest growth of use of such apps has been especially among millenials. As per a research by BCG, millennials spend $1.3 trillion annually as consumers and 55% of those use digital services for payments.

Venmo was bought in 2012 for $26.2 million. The app is serving as a way to extend the reach of PayPal and shows the power of mobile payments. The current focus of PayPal is to increase Venmo’s user base and the current figures show that PayPal’s efforts are indeed giving returns.