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Venmo Battles Bank Copycats By Adding a Much-Desired New Feature

June 25, 2018, 4:35 PM UTC

In a new twist on the clicks-to-bricks trend, mobile payment app Venmo said on Monday it was offering its customers a debit card that could used in any store that accepts MasterCard. That should help the PayPal-owned app expand usage from just online into the real world, much like when popular e-commerce sites open physical stores.

Venmo rose to popularity simply as a phone app that let people send each other money. Users had to link the app to a bank account to put their own money in or take out money that had been sent to them by a friend. The new debit card will allow users to spend their Venmo balances in the physical world without requiring any transfers. The card will also work at ATMs, with no fee within the MoneyPass network or $2.50 per transaction on other networks (not including any fees the ATM owner may charge).

“It’s a smart move considering one of the issues with Venmo has been getting money out of the account and into another account,” says analyst James Wester, IDC’s research director for global payments. “Now users can skip that middle step and the delay as funds settle. It turns it into a more proper prepaid account.”

Banks have been battling against Venmo’s popularity, particularly among millennials, with their own apps that try to mimic the service’s social sharing of money. A group of the biggest banks, including Citigroup, Bank of America, and J.P. Morgan Chase, created the free Zelle service for zapping funds among friends. Because it was developed by the banks, Zelle has closer links to users’ bank accounts, debit cards, and other bank services. The new Venmo debit card could be an effort to match the banks’ advantage. Apple and other tech companies have also been copying the money-sharing feature for their payment apps. Last year, Venmo added the ability to pay for online purchases, perhaps trying to match one of Apple Pay’s main features.

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The new card will link closely with Venmo’s app, for example by listing in the app all card transactions in the same social feed as money transfers to friends. And users will be able to choose from among six bright colors for their card, such as pink, yellow, or black.

PayPal doesn’t regularly release too much information about Venmo, like the total number of active users. In April, when it reported first quarter financial results, PayPal said it had processed $12.3 billion worth of Venmo transactions, up 80% from the same period in 2017. Zelle said it transferred $25 billion in the first quarter.

Investors might be unimpressed with the debit card offer, perhaps fearing that the feature would mean users would leave lower balances on tap with the service. One way financial services firms make money is by investing such customer balances that they do not pay interest on. Shares of PayPal fell 4% in midday trading on Monday, although the overall market was falling sharply, as well.