There is no doubt that Venmo has become a popular way of moving money from one bank account to another. It can be particularly handy when one friend pays for something such as concert or movie tickets or a cab ride and you need to pay your share. People who don’t have a credit card but have money in the bank. Venmo is owned by PayPal, although PayPal didn’t launch the app: they acquired it in 2014.
Originally Venmo could not be used to pay merchants; it was simply a friend-to-friend app. In 2016 Venmo began working with some merchants, and any merchant that accepts PayPal as payment can also accept Venmo. That doesn’t preclude an owner of a business from opening a separate bank account just to handle Venmo payments and doing it anyway. Many food truck owners create a QR code just so their customers can pay by Venmo.
Should you be accepting Venmo payments? On the surface, it might look enticing. A 1% fee is deducted from each transaction. While that is certainly lower than the average 3.5% fee for American Express, you need to be aware of the limitations and potential risks of using the service.
Is It Safe?
When dealing with friends or paying a reputable business, Venmo is (for the most part) safe. The typical security and technology you’d expect from a financial institution protects your account information. But buying or selling with strangers (online or in person) can be risky.
Venmo has claimed that its security is bank-grade, and data is encrypted. However, in February 2018, the Federal Trade Commission settled with Venmo, after uncovering false representations about “bank grade” security. Under the settlement, Venmo must undergo third-party audits every two years for the next ten years. The FTC also complained that Venmo “misled consumers about the extent to which they could control the privacy of their transactions” and misrepresented the availability of funds for withdrawal.
Specifically, Venmo states that customers need not worry about their security or privacy and encourages users to set up a PIN to increase security.
Safest Funding Methods (Paying with Venmo)
The safest way to use Venmo when paying someone else is to use a credit card to avoid providing access to your bank account. If you have a problem, you can always start a chargeback as opposed to finding out that your bank account has been drained. You can also leave money in your Venmo account from others paying you.
Getting Paid (Selling with Venmo)
Receiving payments from Venmo is risky if you are dealing with strangers. It was not designed to be anything more than a friend-to-friend exchange. Venmo payments you receive can be reversed after they hit your account. When you receive a payment, it looks as if the transaction is complete: The money will show up in a Venmo account instantly and you can even use the money. However, that’s assuming everything is good. If there is a problem, the payment can be reversed and you will owe the money back, much like a merchant chargeback. The person who paid you could file a claim with Venmo and say they didn’t authorize it. If they used a stolen credit card as their funding method, the real owner of the card can file a chargeback, and you have no idea who the person was who initiated the Venmo transaction.
Scams with Venmo
Thieves have learned how to beat the system. Once you have been paid, you deliver goods or services on the assumption that the transaction went through. The fact is, it takes several days for Venmo payments to be processed even though they appear to be instant. In a typical scam, a “buyer” asks if they can pay with Venmo. If you say yes, and deliver goods or services, you may find out a few days later that the buyer has reversed the transaction and disappeared. In addition to your loss of goods or services, you will have to pay the money back to Venmo if you took it out of your Venmo account.
Venmo does not offer assistance. The user agreement specifies that the service is for “payments between friends and people who trust each other,” and that there is no buyer or seller protection. Venmo prohibits using the service for business purposes. Some businesses have received notices from Venmo suggesting that charges were reversed because a transaction appeared to be a business transaction.