Venmo, the person-to-person payment app owned by PayPal (PYPL 0.59%), has been the payment provider's rising star since it was acquired along with Braintree in 2013. Venmo is extremely popular with millennials, who find the app particularly useful for splitting shared costs like a restaurant bill, rent, and utilities. The app has become so popular it has achieved verb status, with younger users saying, "just Venmo me."

Last year, Venmo's payment volume increased 97% year over year to $35 billion. That success has attracted a wide variety of potential competitors, the most notable being Square Cash, Apple Pay Cash, and Zelle, a payment method floated by a consortium of 30 major U.S. banks.

While each of these offerings made inroads, Venmo's biggest challenge may be yet to come.

The Venmo app on a smartphone with Chinese takeout in the background.

Amazon is on the hunt, with Venmo in the cross hairs. Image source: PayPal.

The big leagues

E-commerce juggernaut (AMZN 0.58%) is reportedly mulling a person-to-person payment feature using its Alexa-powered smart devices as a starting point, according to a report in The Wall Street Journal (paywall). The company is considering a number of options that would allow customers to send money to friends using its digital assistant, which acts as the software to the Echo's hardware.

If true, this would be the latest move by Amazon to enter the realm of personal finance. After initially adding a store-branded credit card, the company has expanded its initiatives to include its own digital wallet -- Amazon Pay. The company has since introduced the Amazon Payment Global Partner Program, which allows online merchants to offer Pay with Amazon at checkout. The company has also been in talks with big banks to offer its customers a checking account-like product. 

The voice-activated Echo has proven to be a boon to Amazon. Customers that own the smart speaker spend 66% more, on average, than those without the device. Amazon claims that subscribers to its unlimited streaming music service have doubled in the past six months, driven by two interrelated factors: the expanding number of members of it Prime loyalty program and the exploding popularity of voice-activated Echo smart speaker. The ability to send payments could make the device even more useful to its customers.

White Amazon Echo Dot on a table next to house keys.

Is Alexa a match for Venmo? Image source: Amazon.

PayPal has cracked the code

While the popularity of the platform among younger customers is undisputed, there were no charges to users for their peer-to-peer transactions -- so until recently, PayPal hadn't made any money from Venmo. That changed late last year when PayPal rolled out Pay with Venmo, which allowed its users to pay merchants using the Venmo app. Merchants accepting the payment method will pay the standard transaction fee to PayPal, which will provide the company with a largely untapped revenue stream. 

The amalgamation of payment service and communal platform has captivated millennials, who have grown up in the era of social media. The ability to transfer money, include payment descriptions, and top it off with an emoji may seem frivolous to older consumers, but the intersection of financial utility and social interaction make it a perfect fit for younger users. This combination, and the entrenched nature of the app among friends, is part of the appeal for these consumers, and why it will be difficult to unseat Venmo as the app of choice -- at least for now.

Two hands holding a smartphone typing a message into the Venmo app.

Millennials prefer the social aspect of Venmo to other payment apps. Image source: PayPal.

David and Goliath

While Amazon has been enormously successful in many of its endeavors, the company isn't invincible. If you have any doubts, consider the company's foray into smartphones, the Fire Phone, which is likely Amazon's biggest flop to date. The devices were so unpopular that the company took a $170 million charge for the unsold phones just three months after they debuted. 

Another great example is Shopify e-commerce company that helps small- and medium-sized businesses set up and manage an online store. After competing for a time using its Webstore platform, Amazon shuttered that business and threw its support behind its former competitor, sending its users to Shopify.

It's also worth noting that Amazon debuted a similar payment service back in 2007 called WebPay, which allowed customers to send money to friends for free -- sound familiar? That service failed to catch on, and the company discontinued it in 2014. 

For now, this is merely supposition and rumors. Amazon could introduce a competing payment service, but even if it does, there are no guarantees it will succeed. While the situation certainly bears watching, I don't think PayPal investors having anything to worry about -- at least not for the foreseeable future.