Mobile wallets are gaining traction. In the US, PayPal and Square posted eye-popping financial results in Q2’20, fueled by Venmo and Cash App. We break down the payments giants' strategies for expanding their digital wallets here.
Digital wallets are becoming the payment method of choice at more checkouts around the world.
Currently, Asia is the epicenter for mobile wallet adoption. China, for example, sees 48% of spend at the point-of-sale (POS) through digital wallets, fueled by Alipay and WeChat Pay’s duopoly.
Adoption is much lower in North America, where plastic cards continue to dominate — mobile wallets account for only 6% of transactions at the POS compared to credit cards’ 40%. However, digital wallets are gaining traction online. They are projected to account for over 36% of e-commerce transactions and will surpass credit cards by 2023, according to Worldpay.
As the largest mobile consumer finance apps in the US, PayPal’s Venmo and Square’s Cash App are well-positioned to capitalize on this growing opportunity. Covid-19 has been a tailwind for cashless, contactless wallet adoption. Cash App and Venmo have seen 59% and 26% user growth year-over-year (YoY), respectively.
PayPal and Square both posted record financial results in Q2’20, fueled by growth in their digital wallets. We dive into how the rival companies are vying to be the top payments choice in the US below.
PayPal is steering Venmo toward monetization
added functionality aims to bring venmo to the checkout
PayPal’s strategies for growing payments revenue — expanded presence at e-commerce checkouts, greater physical retail integration, and stickier digital services with its new credit card — could help monetize Venmo on a number of fronts. Unlike its rival Square, however, it’s not building out a neobank in the process. Instead, PayPal is more online- and e-commerce-focused. Growth will hinge on Venmo expanding its online channel while ushering in new offline revenues with its card.
Under the PayPal umbrella, Venmo — which was first acquired at a bargain of just $26M by Braintree in 2012 — has transformed into a colossal mobile payments property, doing $37B in total payment volume (TPV) just in Q2’20. That figure translates to 52% growth YoY, helping PayPal post its best quarterly revenue ever. In Q2’19, CEO Dan Schulman said Venmo was on track for $300M in revenue for the year, a figure that has likely grown in lockstep.
Venmo also surpassed 60M users in the last 12 months, which is roughly double the number of Cash App’s monthly active users.
PayPal’s renewed focus on Venmo is reflected in increased mentions of the app on 2020 earnings calls. However, PayPal discusses Venmo less frequently than Square talks about Cash App.