Fraud hit Venmo hard in early 2018, leading the PayPal division for peer-to-peer payments to take an unexpectedly large loss due to fraudulent transactions and to shut down some of its features, according to a Wall Street Journal report.
Losses weighed in 40% higher than budgeted, at $40 million for the first quarter of 2018. That was reportedly 0.40% of volume, instead of an anticipated 0.24%.
In response, the company limited and shut down certain features, while blacklisting tens of thousands of accounts. This included pausing an instant-deposit feature, which allowed transfer of funds in a Venmo account to a bank account in as little as 30 minutes for $0.25. The feature returned a few days later, according to a company spokesperson. Recently, Venmo increased its cost, now charging a 1% transaction fee.
Venmo also stopped allowing transactions from its Web site, requiring all payments to happen via its app. While 98% of users relied on the app already and only 2% used the Web site for transfers, 15% of net losses occurred via the Web site.
The Journal wasn’t able to determine what led to the elevated fraud.
Venmo provided the following statement to Fortune:
Venmo has had few revenue sources in the past and has taken losses on operations since its start. However, it’s slowly shifting into more fee-based services, including letting customers pay for Uber and other services directly from their account balance.
Venmo is one of several companies contending for a vast market of money transfers between people for casual expenses like splitting the cost of a meal to much larger expenses like rent. Competitors include Zelle, run by a consortium of 30 major U.S. banks, and Square Cash, a system operated by the credit-card processing company Square.
Zelle handled $28 billion in transfers in the second quarter of 2018. Venmo managed about half that, or $14 billion, in the same period. Zelle has an estimated 23 million U.S. users, and Venmo about 27 million.
Updated Nov. 26, 8:20 p.m.: This story was updated to include Venmo’s statement.