{"id":5302,"date":"2015-12-09T18:02:14","date_gmt":"2015-12-09T23:02:14","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/venmo-the-facebook-of-e-payments\/"},"modified":"2015-12-09T18:02:14","modified_gmt":"2015-12-09T23:02:14","slug":"venmo-the-facebook-of-e-payments","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/venmo-the-facebook-of-e-payments\/","title":{"rendered":"Venmo: The Facebook of e-payments?"},"content":{"rendered":"

\"Venmo<\/a><\/p>\n

Venmo is a company that demonstrates effective alignment between its business and operating models.\u00a0 Its operating model which relies on an open culture, substantial human capital, compliance with financial regulations, and the novel application of technology and UX design to a particular customer context has enabled it to effectively support its business model.\u00a0 However, despite the alignment between these two models, the business model itself is ineffective in its current form.\u00a0 While it creates significant value for customers, the business model has proven unable to capture more than a minor share of the total value it creates.\u00a0 In order to sustain itself in the long-term, the business model will have to morph and, with it, the operating model.<\/p>\n

The Business Model<\/u><\/em><\/p>\n

Venmo\u2019s current business model is an e-payments network service which facilitates consumer-to-consumer (C2C) payments via its mobile phone application.\u00a0 The business model seeks to displace physical payment \u2013 cash or credit card \u2013 as a form of exchange between parties in a transaction, enabling, for example, restaurant bills to be split more easily.\u00a0 Users obtain value by not having to carry cash as well as transmitting funds more easily.\u00a0 Venmo and its users benefit from the network effect. As more people have and use the app, the more valuable the ecosystem becomes for individual users as they can transmit money to greater numbers of people.<\/p>\n

At the same time, it fuses the payments side of the business model with social networking by publishing all transactions in a list-style feed on the front page of the application.\u00a0 The feed supports both functional and humorous use, ie. Inside jokes, among users which creates additional ancillary value.<\/p>\n

This model has not proven adept at capturing immediate economic value for Venmo. Few users pay Venmo for its service.\u00a0 Instead, Venmo is simply attracting as many users as possible to its system, which like Facebook in its early days, it plans to eventually monetize.<\/p>\n

While Venmo\u2019s business model is currently focused on collecting and engaging users, it has positioned itself to provide increasing value for businesses in the future.\u00a0 It plans to serve a market-making function for e-payments by delivering customers to businesses by integrating e-payments with them.\u00a0 At the same time, it has a simple API interface which enables third-party app developers to create additional value for Venmo users, for Venmo, and for themselves as they build new apps that rely on the Venmo user base.\u00a0 Eventually, Venmo will capitalize on its user base and platform-nature by charging third party apps for access to their user base and data.<\/p>\n

As Venmo\u2019s business model evolves, it will be able to both generate substantially greater value across users and businesses, but also capture a larger share of it.<\/p>\n

The Operating Model<\/u><\/em><\/p>\n

To support its business model of attracting the maximum number of users, Venmo\u2019s operating model is focused on providing the greatest experience possible.\u00a0 This relies chiefly on its user experience (UX) design, technology, human capital, and its market-maker position.<\/p>\n

The user\u2019s experience with the application is intuitive and smooth.\u00a0 There are two primary logistical hurdles to using the service.\u00a0 First, the user must link either a credit card or bank account.\u00a0 Second, the user must add \u201cfriends\u201d or potential counterparties to any particular transaction.\u00a0 Venmo\u2019s designers surmount these obstacles by enabling users to link their Venmo account to their facebook one as well as the phone\u2019s internal contact book.\u00a0 By guiding consumers through these initial obstacles to use, Venmo ensures almost immediate usability. Below on the left is a picture of the process<\/p>\n

\"Venmo<\/a>.\"Venmo<\/a><\/p>\n

Blending into the application\u2019s usability is the encouragement of more intensive use via the historical feed (above right) displaying transaction descriptions.\u00a0 The feed ultimately enhances the user experience and does so with a minimalistic design. By combining these elements, the application has succeeded in spreading rapidly, which is itself a key part of the value-add.\u00a0 An insufficient base or network of users would otherwise sap the app\u2019s viability as consumers cannot immediately turn to it as a means of exchange.<\/p>\n

Behind and parallel to the user experience is the technology.\u00a0 The technology requires two key ingredients: security and accessibility.\u00a0 These two technology components are at odds with each other.\u00a0 Because users are linking their bank accounts and\/or credit cards to the application, the product must provide a high-level of security and strong privacy policies to assuage consumer fears of nefarious actors gaining access to their financial accounts and personal information.\u00a0 The security features, however, must be balanced with ease of access in order to enable users to transfer funds to other parties or to receive them. \u00a0While Venmo is not perfect, it has provided users, at least, the perception of security and to some extent actual security.\u00a0 At the same time, it has enabled users to easily enter the app to transmit or receive money, balancing the security with the accessibility aspect.<\/p>\n

Both the UX design and technology require skilled human capital.\u00a0 Nearly half of the company\u2019s 96 employees are software engineers.\u00a0 Another 12 are product managers and designers.\u00a0 The firm focuses on attracting top talent among both groups to ensure that the technology and UX design elements of its operating model effectively support the business model.<\/p>\n

Model Alignment<\/u><\/em><\/p>\n

First and foremost, the operating model\u2019s UX design elements undergird Venmo\u2019s business model.\u00a0 Without an intuitive and simple UX design, the app would not be as successful in attracting as many users as it has to date.\u00a0 At the same time, the intensity of such use would be less; it is unlikely Venmo would have achieved $2.1 billion in transactions in the second quarter alone without a easy-to-use interface.\u00a0 The network effects of the business model in it current form rely on building a large and active user base.\u00a0 As the business model evolves into one used by other businesses and as a platform, it will rely even more heavily on the competitive advantages that the operating model has enabled.<\/p>\n

Similarly, the surprisingly simple open API platform could not have been built by less skilled engineers.\u00a0 The company\u2019s ability to recruit top-level software engineers has set the stage for the company\u2019s business model to evolve as more third party developers leverage the user base and platform to deliver and capture additional value.\u00a0 The company\u2019s operating model appears poised to support a transformation in the company\u2019s business model<\/p>\n

Finally, as the open API platform matures and more third party developers utilize it, the strategic value of the company\u2019s position within the supply chain will rise.\u00a0 By making itself the center of C2C and B2C transactions, both on its own app and through third-party ones, Venmo\u2019s business model will be able to capture a larger share of the total value created by all players within the ecosystem.<\/p>\n

Sources:<\/p>\n

    \n
  1. http:\/\/www.investopedia.com\/articles\/personal-finance\/010715\/venmo-its-business-model-and-competition.asp<\/a><\/li>\n
  2. http:\/\/www.bloomberg.com\/bw\/articles\/2014-11-20\/mobile-payment-startup-venmo-is-killing-cash<\/a><\/li>\n
  3. https:\/\/www.paypal.com\/us\/webapps\/mpp\/about<\/a><\/li>\n
  4. http:\/\/www.forbes.com\/sites\/natalierobehmed\/2013\/07\/02\/venmo-the-future-of-payments-for-you-and-your-company\/<\/a><\/li>\n
  5. http:\/\/fortune.com\/2015\/10\/28\/venmo-paypal-merchants\/<\/a><\/li>\n<\/ol>\n

     <\/p>\n","protected":false},"excerpt":{"rendered":"

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