Investors in PayPal Holdings (NASDAQ:PYPL) are no doubt familiar with its payment app Venmo. The person-to-person payment platform processed $10.4 billion in payment volume in its most recent quarter, up 86% year over year. The full year figure is even more impressive, with volume of $35 billion, up 97% over 2016.

The platform was so popular among millennials it became a verb, but it had yet to make any money for PayPal. That changed recently, when the company announced it was rolling out Venmo to merchants, and that it could be used as a payment option almost anywhere PayPal was accepted.

That type of growing opportunity was bound to attract competition -- and now big banks want a piece of the action.

The Venmo app displayed on a smartphone, with an open Chinese food container in the background.

Venmo is extremely popular among millennials. Image source: PayPal.

Venmo, meet Zelle

Major financial institutions were initially caught off guard by the popularity of digital payment platforms like Venmo. The app, which is a popular way to send money to friends without incurring charges, was a hit with younger consumers.

In mid-2017, a consortium of 30 major U.S. banks, including heavy hitters Bank of America (NYSE:BAC), Wells Fargo (NYSE:WFC), Citigroup (NYSE:C), and JPMorgan Chase (NYSE:JPM) announced that it would be releasing Zelle, their answer to Venmo. Anyone with a bank account in the U.S. can use the app to send money to other users free of charge. The defining characteristic of Zelle is that it has been integrated into the existing smartphone apps of participating banks, ready to be used. Additionally, since the payments move between banks the transactions typically process within minutes, compared to the one to two business days required for Venmo.

Since its launch, dozens more banks have partnered to offer Zelle, with about 60 planning to offer the service, though fewer than half have rolled it out to date.

She said, he said

At an investor event last month, JPMorgan Chase chief financial officer Marianne Lake boasted that the bank had processed about $41 billion in Zelle transactions last year, which she said was "more than Venmo in total." 

PayPal CEO Dan Schulman spoke at the same event, saying that the characterization was misleading. "Remember, Venmo and Zelle are two very different animals," he said. Schulman went on to point out that the average transactions size for Zelle was about $300, while Venmo was more often used for much smaller transactions, averaging about $60 -- for things like splitting the restaurant bill, or collecting money from a roommate for the utility bill.

Schulman also believes that the social aspect is an important part of Venmo's appeal, which allows users to attach messages and emoji's along with their money transfers, which is a popular feature for the app's younger user base.

Big banks aren't the only competitors that want a piece of Venmo's action. Digital competitor Square (NYSE:SQ) offers a competing app, Square Cash, though the level of competition isn't yet clear. The company revealed in its most recent quarterly results that more than seven million customers used the service in December alone, though Square hasn't released any other meaningful metrics to provide any context to that number.  

Pay up

Digital payments have become something of a battleground, as millennials forego traditional payment methods like cash and checks in favor of digital options. It's also important to point out that Venmo is just one part of PayPal's digital payments portfolio, and its social aspect seems to be one of the key features that attracted younger users to the platform in the first place.

Zelle may indeed steal some of Venmo's thunder, but I wouldn't count out the millennials' favorite just yet.

Danny Vena owns shares of PayPal Holdings. The Motley Fool owns shares of and recommends PayPal Holdings. The Motley Fool owns shares of Square. The Motley Fool has a disclosure policy.