If you asked a hundred people what Venmo is, only a small percentage would likely know. We imagine an even smaller percentage would know that PayPal owns it. That’s all likely to change in the coming weeks. Why? PayPal is rolling out the much anticipated Venmo Credit Card.
The credit card will be issued by another little known company — Synchrony — and the well known Visa-brand. As background, Synchrony issues cards for dozens of household retail brands. These include JCPenney, TJX, Stein Mart, American Eagle, Gap, Old Navy, Rooms to Go, Lowe’s, and others. We imagine the company’s ambition is to move some of America’s oldest beyond brick and mortar retail brands into the new digital economy. According to the company’s website, it has financed more than $149 billion in sales and has more than 75 million active accounts.
According to the press release, the new Venmo credit card will offer a “personalized cashback rewards model”. And there are apparently no annual or hidden fees. PayPal’s GM of Venmo said by the end of 2020 the card will become available to 5% to 15% of the company’s users.
So what’s interesting about this move by PayPal/Venmo? According to the company, existing Venmo customers can apply for the credit card directly via their mobile app. In some ways, it’s a lot like the way the Apple Card was rolled out a little over a year ago. As we noted above, the card will come with a flexible reward structure where cardholders earn from 1% to 3% cashback based on category purchase density. If grocery is the cardholder’s biggest spending category, then that will earn the 3% cashback. Venmo will deposit the cash rewards into customer accounts at the end of each month.
It won’t all be virtual. Cardholders will also receive a physical card. With contactless and chip-enabled features. Apparently, cardholders will be able to split their bar tabs by using a unique QR code.
Venmo’s objective is to make its card a primary card. By assigning cashback percentages by top spend category, it incents someone to use the card for grocery shopping during the pandemic and for travel once that becomes a more normal activity. We believe that won’t be until mid-2021. Essentially the card customizes every month based on the user’s spending habits. This kind of flexibility may give the Venmo card a point of differentiation. At least at the outset. While it may have an advantage in this regard, the APR is no better and in some cases is higher than some other cards. This matters little to those who pay off their cards in full each month. But for those who carry balances, it may have a significant impact on both adoption and daily use.
But this offers some appeal, given Venmo’s widespread use among many consumers who may have never held a credit card. Now instead of using Venmo to pay your friend back for the beers at the ballpark or the trip to the nail salon, the user can build a credit profile and begin tracking how they spend their money using the Venmo tracking tool. According to eMarketer, the Venmo app is currently used by some 46 million today growing to over 63 million by 2024.
And remember for Synchrony, this additional entry into the digital-first market is very likely a needed step. After all, most of the brands where they’re the card issuer are in the twilight of their best times. The success of the Venmo Credit Card may well drive a drop in the average age of a Synchrony cardholder.