PayPal's (NASDAQ:PYPL) Venmo is generally known as a P2P (peer-to-peer) payment app that lets you pay other users. But in January, Venmo started testing out third-party support for payments in two apps -- ticket vendor Gametime and gourmet meal delivery service Munchery.

On July 27, Venmo opened up the feature to all users for use with 11 merchants: Munchery, Gametime, Priv, Poshmark, Hop Market, Wish, Parking Panda, Dolly, Urgentli, Boxed, and Venmo users can now use the app to pay for their entire order from those merchants, or split the bill with other buyers. It's an interesting move, but can it help Venmo fend off its competitors in P2P payments?

Venmo. Image source: Google Play.

Why Venmo matters

Venmo processed nearly $4 billion in P2P payments last quarter, which represented 141% growth from the prior-year quarter. By comparison, mobile payments processed at PayPal's core app rose 56% annually to $24 billion.

PayPal's total processed payments -- which include its website, third-party sites, retail stores, and Xoom -- rose 29% on a constant-currency basis to $86 billion during the quarter. Venmo might seem small when compared to PayPal's entire business, but it's also its fastest-growing platform. However, Venmo is already facing lots of competition in the P2P payments space.

Last year, Facebook (NASDAQ:FB) added P2P payments to Messenger for its U.S. users. As Facebook integrates P2P payments with other e-commerce, chat bot, and app features into the platform, it could become a more lucrative payments platform than Venmo for many merchants. Other rivals include Square's (NYSE:SQ) Square Cash, a P2P payments system that is also integrated into Snapchat, and Apple (NASDAQ:AAPL), which is reportedly developing its own P2P payments system for iMessage.

What this means for investors

Venmo's biggest weakness is that it doesn't have the backing of a major ecosystem. Facebook can introduce its P2P payments to its social network, while Apple can make P2P payments a standard feature for iMessage users. Venmo, however, isn't directly integrated with PayPal's core site or app.

This means that to expand, Venmo must secure more third-party partnerships. However, most of its launch partners are small players instead of major ones -- so investors should see if Venmo can eventually land some bigger game-changing partnerships to lock in more users.

Leo Sun has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Apple, Facebook, and PayPal Holdings. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.