Amazon’s decision to allow payments via the Venmo digital wallet app in the US illustrates how the world’s biggest online retailers are offering more flexible purchasing options in the face of burgeoning consumer demand.
At some point in 2022 (a specific date is yet to be decided), Amazon will allow US customers to fund purchases using Venmo at checkout for the first time. Amazon typically accepts payments via customer credit/debit cards and gift cards. Even Venmo owner PayPal – which acquired Venmo as part of its US$800m purchase of payment processing start-up Braintree in 2014 – is not supported for a direct transaction (though Venmo credit cards can be used).
Venmo is a digital wallet app that allows its users to pay and request money from friends and purchase goods and services from authorized merchants’ payment apps and websites and use in-store QR codes. Funds are sourced from the user’s Venmo balance or registered credit/debit cards and US bank accounts.
The steady addition of new features led the Bank of America to highlight Venmo’s slow evolution into a “Super App”[i] – like AliPay and WeChat in China, Paytm in India, Grab in Singapore, GoTo in Indonesia, Zalo in Vietnam, and Kakao in South Korea. Like those apps, Venmo has recently added credit card and cryptocurrency trading capabilities and is reportedly considering introducing savings accounts, budgeting tools, and stock trading features.
Venmo contributing growing volume of TPV and revenue
There seems little doubt about the size of the opportunity. Many consumers have switched to using digital wallets for both on and offline shopping since the onset of the pandemic, preferring contactless payment mechanisms rather than cash or debit/credit/gift cards. Juniper Research estimates that the number of digital wallet users worldwide will expand from 2.6bn in 2020 to 4.4bn by 2025, 70% of which will be mobile wallets hosted on smartphones or other portable devices.
Certainly, Venmo is one of PayPal’s fastest-growing business segments. It processed US$60bn of total payment value (TPV) in the third quarter, up 35% year on year and representing over 19% of PayPal’s US$310bn total during the period. Reports suggest PayPal expects Venmo will contribute around US$900m of revenue in 2021[ii], with FY21 guidance currently forecasting total turnover in the range of US$25.3bn, which would represent annual growth of 17% in constant currency.
The Venmo collaboration looks like just one component of a broader shake-up of Amazon’s payment strategy, though the approach varies from one country to another. The retailer announced that it would no longer allow its UK customers to fund purchases using their Visa credit cards from 19th January 2021, for example, citing high processing fees as the reason behind its decision. Visa estimates it takes less than 0.1% of the purchase value on average.[iii]
In its Digital Wallets: Key Opportunities, Vendor Analysis and Market Forecasts 2021‑2025 report, Juniper Research also concluded that markets such as the UK and US were lagging behind China and India in digital wallet adoption.
BNPL further expands payment capabilities
Amazon is also exploring other payment options in the US beyond digital wallets. It expanded its partnership with buy now pay later (BNPL) specialist Affirm after its latest quarterly revenue was reportedly boosted by the platform’s growth in active consumers and merchants.[iv]
As of November, all customers in the US will be able to split eligible purchases of US$50 and more into monthly payments, with Amazon confirming the partnership will remain exclusive until January 2023. Affirm will also be embedded as a payment method within the Amazon Pay digital wallet as part of the deal. In August, the online retailer first announced it would add Affirm as a payment option[v], trialing the collaboration with a select number of US customers before a full commercial rollout.
While BNPL related purchases are likely to remain on a smaller scale for some time to come, the same might not be said of Venmo. Analysts have calculated that the new Amazon deal could generate as much as US$1.4bn, or 8%, of Venmo’s total revenue by 2027. And suppose Amazon expands its policy of refusing to accept credit/debit cards. In that case, the collaboration is also likely to push digital wallets to the forefront of online retail payments and drive even faster than predicted growth in user numbers and transaction volumes.
[i] PayPal’s Venmo is morphing into a ‘super app’: BofA, Yahoo Finance, 31st August 2021
[ii] Buy PayPal Now And Get $63bn Venmo App For Free, Seeking Alpha, 10th November 2021
[iii] Amazon to stop accepting Visa credit cards in UK, BBC, 17th November 2021
[iv] Affirm expands Amazon partnership as buy now, pay later surge lifts revenue, Reuters, 10th November 2021
[v] Amazon Partners with Affirm to Deliver Pay-Over-Time Option at Checkout, Affirm, 27th August 2021