What Is Venmo And How Does It Work? – Forbes Advisor

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Americans continue to dive into the digital payment movement. In 2021, 82% of Americans used digital payments, up from 78% the previous year and 72% in 2016, according to a McKinsey & Co survey.

A key part of the digital payment revolution is the rise of mobile payment apps, including Venmo. Owned by PayPal, Venmo enables users to quickly send and receive money. Users also can make purchases through the app. As of November 2021, Venmo—available only in the US—had more than 80 million users.

How Does Venmo Work?

At its heart, Venmo is a cash-free way of sending and receiving money. For instance, you can use Venmo to split a dinner tab with a coworker, pay for your portion of a taxi ride you shared with your aunt or send your half of the monthly rent to your roommate.

Venmo’s job goes beyond that, though. You also can:

  • Make purchases with Venmo’s Mastercard debit card anywhere in the US where Mastercard is accepted
  • Pay for purchases through apps and mobile websites from authorized Venmo partners
  • Use an in-store QR code to make a purchase with Venmo
  • Cash certain checks after you’ve verified your identity by applying for a Venmo debit card or setting up direct deposit
  • Sign up for direct deposit for your paycheck to go straight to your Venmo account, up to two days earlier than your usual payday
  • Receive price alerts about four types of cryptocurrency (Bitcoin, Ethereum, Litecoin and Bitcoin Cash) that you can buy, sell or hold through Venmo

Venmo’s app works on iOS and Android devices.

Who Can Use Venmo?

Venmo has three main requirements for using the app. You must:

  1. Be located in the US
  2. Have a US cell phone that can send and receive text messages using short codes; in the US, short codes are five- or six-digit numbers for texting
  3. Be at least 18 years old (in most cases)

If you want to transfer money from your Venmo account to your bank account, you need to have a US bank account or a debit card that can be used for instant transfers of money. If you don’t have access to a balance in a Venmo account, you must add a US bank account, credit card or debit card to initiate payments.

If you have access to a Venmo account with a balance, you must add a US bank account, credit card or debit card to initiate payments exceeding your Venmo balance.

What Does It Cost To Use Venmo?

Venmo doesn’t hit customers with monthly or annual fees. Furthermore, it doesn’t charge for basic services such as:

  • Sending money from a linked bank account, a linked debit card or your Venmo account
  • Accepting money that goes into your Venmo account or withdrawing money from the account
  • Making a standard transfer to your linked bank account

However, Venmo charges for some premium features and other services. These include:

  • A 3% fee when you use your credit card to send money to someone
  • A 1% fee (with a $5 minimum) for using the check-cashing feature for faster deposits of payroll and government checks
  • A 5% fee (with a $5 minimum) for using the check-cashing feature for faster deposits of non-payroll and non-government checks
  • A 1.5% fee (minimum 25 cents, maximum $15) for instantly transferring money from your Venmo account to your eligible linked debit card or bank account
  • Fees ranging from 50 cents to 2.3% for buying and selling cryptocurrencies

How Long Does It Take To Send Money to Your Bank?

The time it takes to shift money from your Venmo account to your bank account depends on the type of transfer you initiate.

A no-fee standard transfer from your Venmo account to a linked US bank account typically takes one to three business days.

An instant transfer lets you send money from Venmo to an eligible US bank account or Visa or Mastercard debit card, typically within 30 minutes. However, the instant transfer will cost you. There’s a 1.5% fee (with a minimum fee of 25 cents and a maximum fee of $15). An instant transfer can be done 24 hours a day, 365 days a year.

What Are the Dollar Limits for Venmo?

Venmo imposes spending limits for person-to-person payments, purchases with the Venmo Mastercard debit card, online and in-app purchases made with your Venmo account and purchases with an in-store QR code.

If you haven’t yet verified your identity, your combined weekly spending limit for all transactions is $299.99.

If you have verified your identity, your combined weekly spending limit is $6,999.99. This includes person-to-person payments, in-app and online purchases, purchases with your Venmo Mastercard debit card and purchases using an in-store QR code. The weekly limit for person-to-person payments is $4,999.99.

In addition, you’re limited to $20,000 in cryptocurrency purchases per week and $50,000 in cryptocurrency purchases in a 12-month period.

Venmo also restricts how much money you can add to or transfer from your account.

If Venmo permits you to add money from a linked bank account, the weekly limit on how much you can transfer from your bank account into Venmo typically is $1,500.

If your identity hasn’t been verified yet, the limit on funds you can send from Venmo to your bank account is typically $999.99 a week. Once you confirm your identity, you can transfer up to $19.999.99 a week to your bank account. The one-time transfer limit is $2,999.99.

Instant transfers are limited to at least 26 cents and above. Standard transfers can be made for 25 cents or less.

Is Venmo Safe?

Generally, Venmo is considered safe.

Venmo says it employs encryption to help protect your account information and monitors your account activity to help spot unauthorized transactions. Also, it says it stores your information on computer services in secure locations. You can add an account PIN code through the Venmo app to boost security.

On top of all that, Venmo protects accounts with multifactor authentication. When you sign into your Venmo account, you may be asked to confirm your identity by entering a code that Venmo sends by phone or email.

Venmo cautions that its platform “is designed for payments between friends and people who trust each other. Avoid payments for goods and services, unless authorized by Venmo.”

To further improve security, Venmo now asks users to verify their identity through the Venmo app. Without verification, Venmo won’t let you tap into a Venmo balance to make payments, but you can still receive money and transfer funds to your bank account.

You’ll need a Social Security number or individual taxpayer identification number (ITIN) to verify your Venmo account.

“While there is always a risk in providing sensitive information to a company, identity verification is necessary to reduce the number of identity crimes,” the Identity Theft Resource Center says.

In a related move, Venmo now lets users pick a public, private or friends setting for their friends list on the app, and to opt out of being seen on the friends lists of other Venmo users.

The I Theft Resource Center warns that scams involving Venmo and other cash apps have escalated since the onset of the Covid-19 pandemic. On social media, via email and through text messages, scammers have targeted users of cash apps to steal their money or identities.

Common Venmo scams include:

  • Informing someone by email or text message that they’ve won a prize from Venmo
  • Calling a Venmo user to obtain their account information (Venmo doesn’t do this)
  • Calling a Venmo user and pretending to be someone from Venmo tech support
  • Selling something to a stranger who tricks you into believing they’ve paid for an item or service when they actually haven’t

Does Venmo Offer a Credit Card?

In October 2020, Venmo introduced a QR code-equipped Visa credit card providing 3% cash back on purchases. Cash back can be put toward cryptocurrency purchases without a transaction fee. The card doesn’t charge annual fees or foreign transaction fees.

The card is available to eligible Venmo users who apply through the Venmo app.

Bottom Line

Venmo offers an array of services beyond simply letting users transfer cash. However, Venmo users or those thinking about using Venmo should keep in mind that several of these services are not free. Venmo charges fees for some of its services. In addition, Venmo imposes dollar limits on a number of transactions. Despite the fees and transaction limits, users may find the value of Venmo’s all-around capabilities exceeds any costs they might incur.

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