Venmo Launches a Debit Card, Is Zelle the Response?

TechCrunch announced that:

"Venmo is introducing its own debit card in partnership with MasterCard, following beta tests of a Visa-branded debit card last year. The new card will allow Venmo users to pay anywhere MasterCard is accepted in the U.S., and will record transactions to the user’s Venmo account for easy splitting with friends. It can also be used at an ATM to withdraw funds from the Venmo’s account’s balance."

So What - Insight Vault  The best part of this announcement is that Venmo's Visa-branded cards with the lump of dough picture on the front will no longer be offered (see the picture at the top of this post). Whoever thought this was a good idea should be demoted to the mail room. I'm just kidding, of course (about this being the part of the announcement, that is, not the mail room comment).

Does Anyone Want a Venmo Debit Card?

Millennials do. Among younger Millennials (ages 21 to 29), 17% said that not only would they be very likely to use a Venmo debit card, they'd might even use it as their primary card. Among thirty-something Millennials, the percentage who said that is even higher, at 22%.

Interestingly, the highest level of interest in a debit card from a P2P provider was with PayPal, which leads me to think that PayPal (which owns Venmo) may be able to use its brand strength to drive Venmo debit card adoption with its customers who aren't already using Venmo.

What's the Threat to (and Response From) Banks and Credit Unions?

Banks and credit unions won't see a lot of account attrition from a Venmo (or an Apple or Google) debit card, however--they'll see deposit displacement (and payment displacement).

Can Zelle help protect the deposits and payment volume? Partially, at best. Ignore the:

  • Huge adoption numbers that Zelle is touting. All that represents is the signing up of the participating banks' existing customer base.
  • Dollars per transaction numbers Zelle and Venmo report. I'm convinced a lot of Zelle volume is account-to-account transfers between family members, which isn't impacting banks' interchange revenue.

Since (the vast majority of) Zelle users already have a debit card from their bank or credit union, the only way Zelle is going to stem the tide of deposit displacement from Venmo and other P2P providers is by creating more incentives for Venmo users to change their behavior.

Personally, I don't believe the "real-time" promise is enough. Millions of people (happily) use Venmo without real-time money movement.

The key to countering the Venmo debit card threat is a better checking account strategy--not just a better P2P payments strategy.

Ron Shevlin - Cornerstone AdvisorsRon Shevlin
Director of Research
Cornerstone Advisors