Updated · Sep 26, 2022
How Does Venmo Work?
Updated · Aug 16, 2022
Nowadays, Venmo is all the rage.
It’s hard to top the convenience factor of an app that allows you to split bills and make transfers on the go. That’s what makes it so popular.
But have you ever wondered — how does Venmo work? What makes it the gold standard in payment transfer apps?
You’re not the only one.
In this article, we are going to explore what Venmo is, what makes it popular, and how to use it.
What is Venmo?
Venmo is a phone app with which you can make money transfers to friends and family. It is super useful for splitting bills and making payments.
Okay, but what makes it so popular?
A couple of reasons:
- it’s a peer-to-peer app that charges no additional transaction fees
- it’s fast and reliable
- Venmo’s social media-like features make it extra handy for keeping track of your transfers and contacts
The service has grown massively since its launch in 2009. And in part, the reason for its quick growth is its simplicity and user-friendliness.
How Does Venmo Work?
I mentioned Venmo being peer-to-peer or P2P.
But what does this mean?
In a nutshell, it means you’re sending your money directly to the person you choose. There is no third party through which your transfer has to go in order to be authorized.
So how does this work?
Whenever you want to pay back a friend or a family member, all you need is their phone number. There’s a social element to Venmo’s app, which lets you add contacts to your profile, much like on Facebook.
Then, whenever you want to transfer money, you simply pick the recipient from your contact list, and you’re done. All you need to do is type in the amount of money you want to send.
When paying with Venmo, you can link your bank account to your app profile.
All that information stays private while you’re making transfers. You don’t need to fumble around with card numbers or bank codes to send or receive money. The app automatically withdraws the necessary amount from your bank account and sends it to the recipient.
That’s all fine and good. But what if you’re the one receiving the money?
Then you have two options.
When you get paid via Venmo, the money stays in your account. From there, you can choose to:
- transfer the money to your bank account
- keep it on your Venmo account for whenever it’s your turn to pay next
Is Venmo Free?
Part of what makes Venmo so popular is its lack of transaction fees.
Opening a Venmo account is completely free and you can send and receive money without any additional charges.
However, there are certain scenarios where you will get charged additional money for making transfers. Let’s go over them:
Credit Card Fee
You can use Venmo to transfer money or make payments via credit card. However, if you do this, you will be charged an additional 3% fee.
How can you avoid this?
Venmo fees can be circumvented by only making payments from your Venmo account’s balance, bank account, or debit card.
Instant Transfer Fee
When you want to transfer money from your Venmo balance to your bank account, you have two choices:
- Standard transfer, or
- Instant transfer
The Standard Transfer option is free but can take 1 to 3 business days.
If you’re pressed for time, you can pick the Instant Transfer option which takes around 30 minutes. The catch is — it has an additional 1.75% fee, with a maximum fee of $25.
Debit Card Fee
Now, don’t worry — there is no Venmo transaction fee for making transfers from your debit card.
Moreover, there’s a Venmo-branded Mastercard debit card.
While using the card for purchases has no additional fees, withdrawing money is a different story. You can withdraw money from ATMs within the MoneyPass network free of charge. But using other ATMs incurs an additional $2.50 charge.
To avoid having to pay this fee, don’t withdraw money from a non-MoneyPass ATM using your Venmo debit card.
How Long Does It Take to Send and Receive Money?
Here’s another reason for Venmo’s massive popularity — speed.
Sending money between users happens instantly.
When you transfer money to a friend, the funds will appear in the recipient’s account right away. From there, they can either transfer their funds to their bank account or use them for future payments.
So, how long does Venmo take to transfer your money from your app’s balance to your bank account?
The answer is one to three business days.
That is, unless you choose the Instant Transfer option which takes around 30 minutes. Note, however, that Instant Transfers incur an additional 1.75% fee.
Is Venmo Safe?
Venmo is an app that directly ties into your bank account and handles your personal funds. Obviously, an application like this needs to have top-notch security against outside attacks.
So, can you trust Venmo with your bank account details?
There is both good and bad news.
The app itself is fairly secure. It uses data encryption to protect its users’ information. You can lock access to it via PIN code, and you can enable two-factor authentication. All these safeguards drastically reduce the chances of your data getting stolen or taken advantage of.
But that doesn’t mean you should let your guard down.
While the application itself may be secure, scams and fraudsters are rampant, online as well as in real life. That is why you need to be cautious while using Venmo for payments.
Venmo is also a peer-to-peer service. This means that the money goes directly to the recipient. While that’s convenient in terms of speed and lack of additional fees, it can be a double-edged sword. If you transfer money to a scammer, for instance, there is no way to undo the transaction.
How to Protect Yourself With Venmo?
There are many things you can, and should, do in order to protect yourself from scams and data breaches. Given the sensitive nature of the information Venmo stores, having your account compromised can be incredibly damaging.
So here is how to use Venmo safely.
First, and most importantly, set up two-factor authentication. This option means that Venmo sends a code to your phone number whenever you sign in through a new device. That way, your account is much harder to hack.
Even if someone figures out your login credentials, they won’t be able to log in without access to your phone.
Second, be on the lookout for potential scams.
If you see an online listing that asks for Venmo payments in advance, do not fall for it.
There are also many email scams where the scammers pose as Venmo representatives. Usually, it involves telling the victim they’ve won a prize and asking them to click on a link.
The most effective way to avoid scams is by only using Venmo to send money to people you know and trust.
Pros and Cons
Despite its huge popularity, Venmo has its share of cons.
Are you on the fence about trying it for yourself?
Then you should know about all the potential advantages and disadvantages before committing to it.
Let’s begin with the positives:
- Free transfers: No additional fees for transferring money between users, except for credit card transfers.
- Speed: Transferring money from one Venmo account to another takes no time at all. Whereas a regular bank transfer will have you waiting for hours or even days, Venmo does it instantly.
- Instant Transfer: In case you need your money in your bank account quickly, you can do an Instant Transfer. This ensures your money arrives in around 30 minutes. Of course, this comes with additional Venmo fees, but it’s a good option if you’re in a hurry.
- Contact list: Venmo’s social features are part of what makes it so easy to use. You can keep a list of your trusted contacts, friends, and family, and quickly send them money whenever you need to.
Now, for the disadvantages:
- Potential scams: Venmo’s quick and effortless transactions make it a haven for scammers. So always verify who you’re sending money to beforehand.
- No cancellations: Venmo’s peer-to-peer nature means that once a payment is sent, it’s sent. There is no way to take it back or cancel it.
- US only: Venmo is not supported internationally — it’s only available for US residents. For international transactions, you’ll need to use something else.
It’s easy to see why Venmo is such a hit.
It’s a free app with which you can instantly send money to friends and relatives with no additional fees. It works with bank accounts, debit, and credit cards. And all you need for the transaction is to know the recipient’s phone number.
Payment on Venmo works on a peer-to-peer system. That means your payment goes directly to the recipient.
But of course, its ease of use is also why it’s a popular front for frauds and scams. This is why you should only ever send money to people you trust.
If used wisely, it’s incredibly convenient.
Why shouldn’t you use Venmo?
There aren’t many disadvantages of Venmo. As long as you stay away from scammers, your money will be safe. However, if you’re looking to make international transactions, remember that Venmo only works in the United States.
Does Venmo require a bank account?
You don’t need a bank account to register for Venmo. You can use the Venmo debit card to withdraw money from your Venmo balance. However, you do need a bank account if you want to send money to someone else.
Is Venmo safe to link to a bank account?
Yes, Venmo is safe. It uses encryption to protect its users’ data, so the chances of your bank details getting stolen are almost nonexistent.
What’s the catch with Venmo?
Venmo has no catch, it’s a free app with which you can make transfers with no additional fees. Check out our “How Does Venmo Work?” section for more details on how the app functions.
My fascination with technology began from quite an early age thanks to computers and video games. Nowadays, I love anything related to music production and astronomy. Coincidentally (or is it?), both of those have a great deal to do with tech. Honestly, most of the stuff that can be accomplished with modern electronics kind of seems like magic to me. This is why I feel this strong need to constantly learn more about it and talk about it, almost to the detriment of others.
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