How Does Venmo Work?

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Picture it: The year is 2000 and you've just finished dinner with a friend. When it comes time to split the bill, your choices are either to pull out cash or grab your checkbook. The cellphone in your pocket isn't even powerful enough to help you calculate what you owe.

Fast-forward to today. Thanks to peer-to-peer (P2P) payments apps like Venmo, your checkbook collects dust in a drawer and your wallet's unburdened by cash. This time, when the dinner bill comes, you whip out your cellphone to pay your half.

Venmo is one of the most popular P2P apps, with 65 million users and growing. Here's a look at what it offers, and how to avoid fees while using it safely to transfer and receive money at a whim.

How Does Venmo Work?

Venmo was launched in 2009 to offer mobile payment services between users. It was later scooped up by the online money-transfer giant PayPal. The mobile app lets users send and receive money, and it's (mostly) free. Users "Venmo" each other to split bills, buy cryptocurrency, pay for goods or even tip.

And beyond its capacity for person-to-person payments, Venmo is used by millions of businesses to accept payment for services and goods, both online and in-store.

To start using Venmo, you'll add some personal information and link your bank account, debit card or credit card. From there, you're ready to accept payments on Venmo or search for others by name, email, phone or even with a personal QR code. When it's time to send a payment, simply select your recipient, adjust the amount and send your payment on its way. You can even enable Venmo's iMessage extension to enable the app within your text conversations. Transferred funds are instantly available.

Venmo's social component lets you view the transactions of other users and add notes to your payments. If you'd rather keep your transactions private, however, this feature can be disabled.

Does Venmo Charge Fees?

When you send money with your linked debit card or using your Venmo account balance, you'll avoid fees on the exchange. Likewise, when you want to cash out your Venmo balance or add to it from your card or bank, you can initiate a standard transfer to or from your bank or card that will arrive in a few business days, sans fees. However, there are a few instances in which Venmo charges fees or imposes limitations:

  • When you pay with a credit card: Venmo charges a 3% fee if you use the platform to send money from a linked credit card. Additionally, some credit card companies consider the transaction to be a cash advance, meaning you could be responsible for cash advance fees and interest rates. Using a credit card with Venmo to make an online purchase won't trigger these fees.
  • When you want an instant transfer to your bank or debit card: You're subject to a standard 1.5% fee, costing a minimum of $0.25 up to a maximum of $15 if you want to bypass the waiting period.
  • If you're a business owner partnering with Venmo: Businesses can get the benefits of the app's widespread accessibility, but have to fork over 1.9% and $0.10 for every payment you accept over $1.
  • If you want to send $7,000 or more today: Once your identity is verified, Venmo caps your weekly payments at $6,999.99.
  • If you want to buy cryptocurrencies: You're subject to applicable exchange rates and fees when purchasing one of the four crypto options available on the platform: Bitcoin, Bitcoin Cash, Ethereum and Litecoin.

Is Venmo Safe?

Venmo protects your account with data encryption technology and, optionally, a secure PIN code or two-factor authentication. But, like most digital transactions, there are some risks involved:

  1. Consumer protections—or lack thereof: Unlike bank balances, your Venmo balance isn't protected by the Federal Deposit Insurance Corporation (FDIC). So funds sitting in the app aren't guaranteed if Venmo goes under. And when paying for goods or services, a credit card can offer better recourse than Venmo, though Venmo offers its own purchase protection for eligible transactions.
  2. User error: That's right, you are among the risks to look out for when using Venmo. If you send digital cash to the wrong person, you may be out of luck getting it back.
  3. Scammers: Scammers can try to access your Venmo to steal your assets. For example, if you fall victim to a phishing scam, your Venmo account can be compromised by fraudsters.
  4. Privacy: The app's default settings are "public," so you need to customize your profile if you don't want your name, profile picture and transactions visible to anyone and everyone—details that could also lead to another common scam, called spear phishing.

You can have all or part of your paycheck directly deposited to your Venmo balance, but it's not a good idea to leave much money idle on Venmo. You'll face fees if you need to make a fast bank transfer, and keeping proceeds from your paycheck subjects your hard-earned cash to the aforementioned risks. If you don't already have one, it's a good idea to open a bank account and deposit your paycheck there.

The Bottom Line

Beyond the app, Venmo offers a branded debit and credit card, complete with your personal QR code for easy exchanges. These physical options offer another convenient way to utilize Venmo, though you should always review the best card options to keep in your wallet. Overall, Venmo is a fast and easy way to move money, especially when you keep the spending within your trusted social circle.