Person-to-person payment apps like Venmo and Square (SQ 7.00%) Cash aren't big moneymakers. In fact, they could be losing money at a significant pace. However, their long-term revenue potential can't be ignored.
A full transcript follows the video.
This video was recorded on Aug. 31, 2018.
Shannon Jones: Turning corners here, Matt, we've talked about the big three players, what they do, how they make money. But, in your eyes, you actually don't see peer-to-peer payments as being the big money-making opportunity. You think there are some other ways that they can branch out and pull in the big bucks. Let's talk a little bit about that. Where do you see this field evolving? And how do you see these players becoming more profitable?
Matt Frankel: Well, it depends which company we're talking about. Zelle, for example, I see as more of a defensive app. Its main function is to prevent loss of business for the banks. If Venmo or Square Cash does every function they would need in terms of their banking, then Zelle can stop the bleeding of business.
For Venmo, right now, what the app is doing is bringing more people into the PayPal ecosystem. It's creating more potential customers that could use PayPal's other platform, that could be used to cross-sell other products in the future. Same with Square. Square's bringing in seven million active customers. For comparison, their core payment hardware business only has about two million active users. This is a big group of people being brought into Square's ecosystem that could be used to cross-sell other products. Square, for example, is ramping up their small business lending program, which could eventually turn into a personal lending program. Then, they already have seven million built-in customers. I mean, that's very theoretical at this point.
The other thing is the cryptocurrencies. Right now, they're not making much money. I want to say their profit on Bitcoin in the last quarter was about $30,000, which is nothing. But over time, if Bitcoin becomes one of the world's leading currencies, as Jack Dorsey thinks, that could definitely be a big revenue opportunity.
With Venmo and Square, it's not about making money in the short-term. It's about bringing as many people as possible into the company's ecosystem that could be eventually leveraged into revenue streams. With Zelle, as I mentioned, it's more of a defensive play. There's definitely a lot of long-term revenue opportunities here.
Jones: I totally agree. I think the long-term growth opportunities definitely lie with Venmo and with Square. In late July, PayPal's COO mentioned that 17% of Venmo users have actually already engaged in some sort of monetized experience so far this year. Really, that comes down to bringing in merchants into their ecosystem, like Uber, Uber Eats, Grubhub, Seamless, Eat24, even Williams-Sonoma. They're basically adding dedicated Venmo buttons to their site in their apps. He even noted that there's demand for it, not just on the merchant side, but even for the customer side, as well. This is allowing PayPal and Venmo to really start collecting transaction processing fees directly from the merchants. That's definitely an opportunity. As you mentioned, it's continuing to bring more and more people into their ecosystem.
With Square, you touched on it already, I think the huge opportunity is moving Square Capital from that business-focused lending to now more consumer-driven lending. Really, I think the key for Square is going to be in its data. As they continue to build out their ecosystem, and with this omni channel presence that they're building, I've been so impressed with how they've been expanding vertically in particular. But, I think what you have with that is, as you bring more and more people in, not only are you collecting data on their spending habits, not only can you start making personalized marketing recommendations, but you're also making better, more informed lending decisions. I think that's going to be a huge competitive advantage for Square in the long-term.
Frankel: Definitely. Like I said, it's all very theoretical at this point, what could be the big money drivers. But, I mean, business lending, even if they get a small percentage of those seven million users to take advantage of personal lending services... Right now, I think Square Capital has, only about 3% of Square's merchants are taking advantage of it, and it's become a big revenue source for the company. So, like I said, even a small percentage of that seven million could be a big deal.
Jones: Absolutely. Definitely an area to keep an eye on. I'm really excited about this space. Hope our listeners are, as well.