How can Venmo offer peer-to-peer transactions without charging fees?
Payments
Asked by Question Bot09/Jun/20121 answer
1 Answer
F
Faisal Khan
Answered 09/Jun/2012
Two ways of looking at this answer...
Speculative...
If say the fees negotiated is 10 cents per transfer for high-volumes, then this would equate to US$ 1000 per day for 10,000 transactions. This is just an example. For a 30-day period, this would be US$ 30,000 and you would have transacted on your system 300,000 transactions. This however, is the speculative side of things.
Most Likely Scenario...
The most likely reason they are able to offer this free, is because Venmo most likely maintains Nostro accounts with all the banks they work with. So for example if money is being paid from one Venmo account to another, it could very well be that both the Venmo users are with Bank of America. In such a case, the transaction would be something like this:
Venmo User # 1 (Bank of America) -> Venmo (BoA Nostro Account) -> Venmo User # 2 (Bank of America).
Transactions within BoA ecosystem would be FT (Funds Transfer) and would be free.
Likewise if there is a payment from a Venmo user that is Interbank (think Bank of America to Well-Fargo Venmo user), the Venmo simply nets off on a daily basis between all their Nostro account.
Payments within the same banking network would always be the same. The net-off settlements would cost Venmo much less (think of it like an RTGS System.
Speculative...
If say the fees negotiated is 10 cents per transfer for high-volumes, then this would equate to US$ 1000 per day for 10,000 transactions. This is just an example. For a 30-day period, this would be US$ 30,000 and you would have transacted on your system 300,000 transactions. This however, is the speculative side of things.
Most Likely Scenario...
The most likely reason they are able to offer this free, is because Venmo most likely maintains Nostro accounts with all the banks they work with. So for example if money is being paid from one Venmo account to another, it could very well be that both the Venmo users are with Bank of America. In such a case, the transaction would be something like this:
Venmo User # 1 (Bank of America) -> Venmo (BoA Nostro Account) -> Venmo User # 2 (Bank of America).
Transactions within BoA ecosystem would be FT (Funds Transfer) and would be free.
Likewise if there is a payment from a Venmo user that is Interbank (think Bank of America to Well-Fargo Venmo user), the Venmo simply nets off on a daily basis between all their Nostro account.
Payments within the same banking network would always be the same. The net-off settlements would cost Venmo much less (think of it like an RTGS System.