Tinder for money: Venmo (TransferWise, Azimo, etc) as social network you've never heard of

Read full story in the new issue of Money Of The Future 2016\2017 report

When Sarah Mellema wanted to shoot a quick, encouraging message to her friend Sam, she didn't open Facebook, Instagram, Twitter, Snapchat or WhatsApp. She didn't email, text or call. She used Venmo. "Miss you boo. Here's a kiss and some money ," the 26-year-old Chicagoan wrote, attaching a digital payment of 50 cents to the message.

That one note may not seem significant, but it represents Venmo's unlikely status as a thriving, millennial-heavy, emoji-infused social phenomenon, even though its reason for existing involves the boring business of paying bills and IOUs. The US-only mobile app, which is free to download and mostly free to use, pairs with people's bank accounts to let them pay each other or request money, similar to Square Cash. The difference is that Venmo lets its users make those payments and their associated messages public on social feeds that others can comment on and like.

Interviews with more than a dozen Venmo users showed how they are are finding new ways to jury-rig the app into a more social experience, such as using the messages for crude and silly inside jokes ("sex swing for new apt"; "money I stole from your wallet"), cataloging memorable events, sending money for drinks to a missed bachelorette party, or -- like with Mellema -- making micropayments to friends as a clever way of saying hi. "Venmo is not an inherently social app in the way of Facebook or Twitter, but it offers emotional support and the ability to keep in touch," said Cliff Lampe, a social-media professor at University of Michigan's School of Information. "Young people are good at repurposing feeds and emojis and signals to mean different things and to become social even when it's not intended to be social."

Venmo and owner PayPal say they're keenly aware of their responsibility to preserve Venmo's sometimes crass, sometimes goofy culture, and are working on more ways to help users express themselves.

This mashup of payments and social worlds, which launched to the public five years ago this month, doubled its user base last year to nearly 9 million, ahead of all but four US retail banking apps. PayPal said Venmo doubled its total transactions to $17.6 billion during the same time. And, a whopping 81 percent of Venmo's users are millennials -- 10 percentage points higher than millennial darling Snapchat.

The social feeds sparked new behaviors among users and revealed just how interactive payments can become. A typical usage involves one person paying for a large dinner party with her credit card, then Venmo'ing requests to everyone else for their shares. Since most people already know why the money is being transferred, they instead crack jokes in the messages, including plenty of use of the eggplant emoji (code for penis). There are also a lot of drug references -- although it's doubtful all of them are jokes.

Venmo has allowed for some new, and sometimes uncomfortable, forms of interaction. Brent Schneiders, a 28-year-old actor from North Hollywood, California, said he's charged back women for dinner or drinks if dates go poorly. "It's more of me throwing a fit and trying to communicate to them that 'I never want to see you again,' " he said. "The social feed of it, I don't understand what it gets Venmo and what it gets users," Deol, 27, of San Francisco, said. "And I think it's extreme oversharing and toxic for our culture."

All these points of tension are part of the growing pains of a new social network, Lampe said. "A lot of concern about how these financial exchanges change social relationships," he said, "are just frictions of norms not catching up to the changes of technologies." New users seeing their friends paying with the startup service created a layer of trust, known as "social proof," Lampe said, and encouraged them to bring more friends along.

But, in addition to that trust, there are still clearly wrong ways to Venmo. After all, it exists in the highly regulated banking industry. Ross Lipschultz, 26, from Chicago, said his account was suspended for days after he paid a friend back for drinks and wrote the message, as some forgotten joke: "A cool night in Havana." Venmo emailed him that the reference to Cuba's capital was flagged for potentially violating US sanctions under the federal Office of Foreign Assets Control.

It can be so easy to send and receive money that Sarah Vakili accidentally messed up the process. At the bar American Whiskey in Manhattan watching a University of Georgia football game, her boyfriend offered to cover the tab upfront for a large group of friends. Vakili grabbed his phone and sent out Venmo messages to over 20 people for $60 each. But, she accidentally sent them money instead of requesting it, charging her boyfriend (temporarily) about $1,200 through the app. "Just like when they say don't drunk Facebook, don't drunk Venmo," she warned.

This year, Venmo plans to partner with more retailers, so people can use it more often and Venmo can make money off the business transactions. That could endanger the social feeds by clogging them with boring, personal or embarrassing purchases, such as paying for an oil change or hemorrhoid cream. Mindful of the app's culture, Ben Mills, Venmo's head of product, said the service will give people more control on what they share when buying from retailers. "We want to enhance that social experience," Mills said. "Our users are teaching us payments are rarely about sending money."

"If the designers of new systems understand the power of social feeds, I think that's for sure a common design element you're going to see," Lampe said. "Any time humans interact with one another we're constantly interested in what other humans are doing."

The segment of online remittances is one of the most dynamic fintech segments, mostly due to the huge interest from social networks and instant messengers. Similar blockchain-based startups have so far attracted much attention but haven’t made a strong impact on the market yet.

Messengers have aggregated enormous audiences: 1.2B WhatsApp users, over 1B audience of Facebook Messenger, 858M Viber users, 846M people using WeChat, 220M - Line, 158M - Snapchat, 100M -Telegram, 48M - KakaoTalk, 5M - Slack (whose success encouraged WeChat and Line to launch their own solutions for their audience). All the above-mentioned companies are striving to become “more than a messenger”. Most of them are international, except for WeChat, KakaoTalk (the number of their users outside Korea has dropped from 10M to 6.8M people, which makes a 15% decrease), and Japanese Line (having a large market share in Thailand and some SEA countries). Two of them went public: Line in 2016 (the quoted market prices are stable with approx. $7.3B capitalization) and Snapchat in early 2017 (the quoted market prices are volatile, now being “calibrated”, with capitalization around $22B).

Asian messengers, such as WeChat, KakaoTalk, and Line, are much better monetized than their American counterparts are, due to their high diversification of the product range: an application enables you to order a taxi, shop online, pay bills, play games, make payments and transfer money. WeChat has 846M users, 300M of which use WeChat Pay. The service has gained $46M in remittance fees, which allows assuming that its annual volume of transactions is about $550B (almost double the turnover of PayPal with its $282B). The company has integrated with ApplePay and Starbucks to expand its penetration in China, and with Adyen to allow foreign customers to top up their e-wallets in other countries in nine more currencies. Unlike AliPay, which is WeChat Pay’s main competitor in China, the company has not yet started its active foreign expansion by investing into or acquiring foreign fintech startups. The success of KakaoWallet encouraged KakaoTalk to make it a separate company. In 2016, it gained the online banking license from the regulator and in early 2017 attracted $200M in investment from AliPay.

Such players as Facebook Messenger and Telegram have been actively developing chatbots and integrating games. Facebook Messenger now offers online money remittances not only in the US but in Europe as well (the company has obtained the e-wallet license in Ireland). There was no news on the topic from WhatsApp in 2016, except for rumors from India that the company was going to launch online remittances there. In this country, the service has 200M users (over 15% of the entire customer base), and the mobile wallet FreeCharge has integrated with the messenger. Back in 2014, Snapchat partnered with Square to launch its money transfer service (however, no news on the progress in this area so far). In 2016, it was rumored that an online trading service for youngsters like Robinhood was going to be launched (again, rumors remained rumors). Talking about neo-banks, we are currently seeing many mobile banks for “Snapchat generation”, so maybe the acquisition of one of them could allow the company to take on financial services, as well as improve monetization of its customer base. In the American and European countries, startups like Transferwise, Azimo, CurrencyCloud and WorldRemit are more active in remittances via messengers than messengers themselves are. Most likely, they will be finally acquired, as it was predicted by the market two years back. This would make the most sense for the messengers, which haven’t succeeded in this area.

As in many other fintech sectors, the majority of the leading online remittances companies are based in the US (Venmo, Dwolla, Remitly, ClearxChange) and UK (TransferWise, WorldRemit, Azimo, Revolut, CurencyCloud). There are some strong remittance services localized in France (Lydia), Ireland (CurrencyFair), Israel (TravelersBox), South Korea (Toss), Singapore (Instarem, Fastacash, Kashmi), the Philippines (Ayannah) and other countries, but in fact, they are just growing their assets to be acquired by bigger players (like Israeli Xoom was acquired by American PayPal), and can barely change the market landscape. Otherwise, the local players will have to expand their product line horizontally, rather than compete with international single-product companies for a market share. Remittances are at their core very low margin businesses and as a result, must have exponential growth of their client base or have to increase margins by offering new complimentary products. Competing by offering just quality is not enough.

Outreach expansion requires constant cash infusions, therefore, the majority of startups attracted new capital in 2016: TransferWise - $26M (overall $117M, valued at $1,1B), WorldRemit - $45M (valued at $445,8M), Azimo - $15M, Revolut - $4,8M and additional $10M, Remitly - $38,5M (overall approx. $100M), CurrencyFair €8М and $8,8M, Toss - $23M and $23,7M,  AirWallex - $5M, TravelerBox - $10M (overall $15,5M), Lydia - $7,8M, Instarem - $5M. Compared to Venmo, which processed $17,6B in remittances in 2016, other players’ turnovers are much smaller: Toss - $3B, Revolut - $0,5B.

While big messengers and social networks like Facebook, KakaoTalk, Line, Wechat are just entering into the social remittance market, being inspired by the enormous success of WeChat in China, online remittance startups are actively integrating with chatbots for remittances: TransferWise (which has recently expanded to Russia) and Azimo (which has raised a new round from Rakuten, the owner of Viber) have integrated with Facebook Messenger, and Lydia has integrated with Slack. There is a lot of experimenting with the integration of AI technologies and remittances.

Remittance companies used to compete for developed markets, like Transferwise in Canada, Japan and the US. However, in 2016 we saw a massive migration towards Asian countries: Azimo entered the Asian market, Worldremit was developing in Africa and Remitly in Latin America. The unbanked markets now have their regional leaders (Ayannah in the Philippines or Red Dot in Myanmar), which enable both new applications and traditional leaders to integrate their online and offline strategies.

In addition to the integration with chatbots, in 2016 remittance startups started to launch complimentary products that attracted even more interest from customers: PayPal’s Venmo started integration with the points of sale connected to PayPal, allowing them to accept offline payments through the app. The move from pure remittances towards offline and payments should allow companies to increase revenue from the client base (historically remittances attract a large number of customers, but have low marginality). Surprisingly, we have not seen major partnerships (or M&A) between remittance services and mPOS-acquiring players. However, there are a few examples: Ezetap has integrated with Paytm and Mobikwik in India, while Square develops Square Cash following the same logic. There are two promising ways to expand a product range and increase the profitability of a customer base: South Korean Toss has launched a micro lending and PFM service for its 4 million young customers. Singaporean Kashmi is also considering the development of PFM service, and subsequently a full-fledged mobile bank for the youth audience (not only in Singapore but also in unbanked markets: the Philippines, Sri Lanka, Indonesia, and Cambodia).

It’s now obvious that the historic remittance giants consider newcomers to be not just a threat, but also market-shifters, and as a result, the giants are making attempts to re-think their role in the new digital world. Western Union, Moneygram, XpressMoney have launched new projects on API integration with new players, and are trying to leave newcomers behind by establishing more close partnerships and joint projects with banks. The world's largest fintech company Ant Financial (AliPay) is waiting for approval of its acquisition of MoneyGram for $880M, dropping the latter out of the race. It’s a win-win deal for both parties: MoneyGram gets an opportunity to find its place in the online world and enter the Chinese market, while AliPay achieves close offline integration through their access to 350K partners in 200 countries (each of 120M Chinese tourists spends annually about $875 abroad), which are connected to banks with 2.4B of customer accounts in total.

Both traditional giants and newcomers are looking towards the open APIs development in order to become a platform rather than work with the "last mile" - customer relations: American Dwolla with 650K clients has also shifted its strategy in this direction.

Telecoms are trying to find their place in the market: British Lebara has launched Lebara Money in an attempt to replicate the success of mPesa from Vodafone in Africa, but it’s too early to evaluate the results. A technological solution and a product that customers like are two different things. To this end, it would be much less risky and eventually cheaper to acquire one of the startups.

Some blockchain-based remittance companies (like Circle from the US, which raised $60M in 2016 at the valuation of $428,3M) put emphasis on provision of services to the end consumers, while others (such as American Ripple, which attracted $55M, valued at $339M and Canadian Blockstream, which also raised additional $55M) are more focused on the cooperation with partner-banks in order to establish a faster and cheaper remittance infrastructure. Interestingly, Asian investors actively invested in all three companies: Chinese Baidu and CreditEase – in Circle, Japanese SBI - in Ripple, Hong Kong's Horizons Ventures - in Blockstream. The first company is actively developing in the Chinese market, while the latter - in Japan and Southeast Asia.

Recently fintech companies CurrencyCloud and Toss raises $73M from Google and PayPal.

CurrencyCloud, a fintech company that helps businesses make cross border payments, has raised £20 million ($25 million) from Google’s venture capital arm, GV. GV led the “Series D” round of funding — the fourth injection of money from institutional investors — but CurrencyCloud also attracted money from existing investors, including Sapphire Ventures, Notion Capital, Japanese e-commerce giant Rakuten’s fintech fund (investor in Azimo too), and Anthemis Group (ex-Life.SREDA’s portfolio investment).

The latest investment takes the total raised by the 5-year-old business to £44 million. CurrencyCloud last raised money in June 2015. CEO Mike Laven (speaker at Life.SREDA’s Money Of The Future conference) told BI this week: “We don’t give the valuation but the actual valuation has more than doubled since the last round.” Over 200 companies use CurrencyCloud’s technology and more than $25 billion has been sent across its network.

CurrencyCloud offers firms a simple piece of software that lets businesses send money internationally in a simpler and cheaper way than banks do. Best of all, it plugs in to their existing systems through something called an API — a little like a digital lego brick you can tack on to carry out a specific function. Just as with lego, the individual bricks can be used to build something entirely different. Many modern companies come up with their product by plugging different APIs together in new ways. Laven says CurrencyCloud’s focus on APIs is what attracted GV. He said: “GV looked at that and looked at empowering developers and making it easy for them to tie up to global services and said that is consistent with our view of a world, a tool that’s part of globalization. That was part of the theme of the investment. “We’ve been saying all along, we’re not just a payments company, not just an FX company. We’re a platform with API access to the world of global payments.”

GV partner Tom Hulme said in a release announcing the investment: “We believe in empowering developers by making it easier for them to add scalable services to their products, ideally with simple APIs. CurrencyCloud is the leader in providing cross-border payment services in this manner, a real need as companies globalize.”

Laven says CurrencyCloud will use the funding to expand in the US, where it already employs 12 people in New York, and in Asia, where it currently has no presence. “When we talk about global expansion, what we talk about is increasing the scalability of the platform, building out our operation in North America, and establishing an operation in Asia. Then that becomes a 24/7 operation and that takes investment in order to keep that service for the customers”

At the same time Viva Republica, the company behind Korean financial services app Toss, has closed a $48 million Series C funding round that includes a strategic investment from payment giant PayPal. The round was led by San Mateo-based VC firm Goodwater Capital, which led Viva Republica’s Series B round and counts Korean tech giants Kakao (messaging) and Coupang (e-commerce) among its portfolio. Bessemer Venture Partners, Altos Ventures and Partech Ventures also participated in the round. The deal takes Viva Republica to $76 million raised to date. The company didn’t provide a post-money valuation.

Viva Republica is known for Toss, a financial services platform that started out tackling Korea’s archaic payment system. The pain of cumbersome online payment processes is what drove former dentist SG Lee to start the business two years ago, and today Toss has processed more than USD $3 billion in transactions from a base of 6 million registered users. Korea’s population is just 50 million people, but it is the world’s eleventh largest economy. “Before Toss, users required five passwords and around 37 clicks to transfer $10. With Toss users need just 1 password and three steps to transfer up to KRW 500,000 ($430),” Lee said in a statement.

- “The MOU with Life.SREDA, which has specialized in investing in fintech companies, is very meaningful for the development of Korea’s fintech sector,” said President of the Korea Fintech Association and CEO of Toss, SG Lee. -

Over the course of its founding, Toss has gone beyond peer-to-peer transfers and branched into consumer financing. Inspired by the likes of CreditKarma and Mint in the U.S., it launched a financial dashboard, credit scoring and micro-loans (with one-minute decisions) in a bid to make financial services “as frictionless as possible” in Korea. This year Toss will introduce a loan marketplace to provide further credit options, micro-insurance, and TransferWise-style cross-border money transfers. That’s where a large chunk of this new funding will go, as well as helping increase awareness of the Toss service from its current crowd of tech-savvy youngsters to the older demographics in Korea.

The service counts 18 of Korea’s 19 major banks as partners for facilitating payment and offers various other banking services. The startup has plenty planned for this year, but outside of Korea Lee did admit that it will make a decision on international expansion before 2017 is out. Initially, his focus appears to be on Southeast Asia, where he sees parallels with the state of fintech in Korea from a couple of years ago, and that could be where the relationship with PayPal could come into play.

Google is wading back into the crowded P2P payments arena, adding a feature to its Gmail Android app that makes sending friends funds as easy as attaching a file to an email. Google first began letting US users send and receive money through Gmail on desktop back in 2013 but is only now bringing the feature to the Android (but not iOS) app. US users simply link a card and then tap on the attachment icon and pick whether to send or request money. Recipients do not need a Gmail account and can have the money routed directly to their bank accounts. The service is free to the tens of millions of US Gmail account holders, although it remains to be seen whether this is enough to help it gain momentum in a fast growing market dominated by PayPal's Venmo.

Read full story in the new issue of Money Of The Future 2016\2017 report

Follow me on Facebook, Twitter or LinkedIn

P.S. A 200 EURO discount code for our friends to participate on DIA Amsterdam and Money2020