Cash vs VenmoWhat started as a weekend trip between friends led to the eventual founding in 2009 of the start-up mobile payment service, Venmo. The term itself is a literal combination of the Latin phrase "vendere" meaning to sell and "mobile." After Venmo co-founder Iqram Magdon-Ismail forgot his wallet one weekend while visiting fellow co-founder Andrew Kortina in New York, the string of "I owe you's" that followed helped to hatch the idea of service that allowed you to send money via text message. Fast forward to 2016 when Venmo, now a mobile application, transferred a company record $2 billion in total payment during the month of December alone.

If this idea of sending mobile money sounds familiar, it's because this isn't a new concept. In fact, some companies have been transferring money via mobile devices for over ten (10) years now. M-Pesa, the Kenyan based version of Venmo, sent their first mobile payment via text message in March of 2007, and in 2016, transferred over $6 billion in ten (10) different countries. As with any growing industry, we've also seen other competitors enter the space like Google Wallet and Apple Pay.

The practical use of digital wallet services like Venmo and M-Pesa are obvious. But how does this shift towards a paperless economy affect banks and regulators? Some have argued relying less on cash will help curb illicit activity, where it currently serves as the primary financer. Others have argued that the ease of conducting mobile transactions paired with the anonymity surrounding the true purposes of these payments poses similar risks to cash. At this point, however, it doesn't appear there is a clear answer.

In September 2016, the Consumer Financial Protection Bureau (CFPB) issued a new ruling aimed at protecting consumers who use prepaid cards, including increasing the transparency surrounding fees among other areas. However, also lumped into this ruling (which goes into effect October 2017) were digital wallet services like Venmo. Though their users are not subject to fees (unless using a credit card) like prepaid card holders, Venmo offers the ability to keep a balance in your account, thus subjecting them to the same regulations imposed on prepaid cards. Fair or not, the inability to accurately classify this new industry led to their grouping under the prepaid cards category. Even the Bureau indicated a "lack of standardization in funding and processing of payments in the digital wallet space." Frankly, at this stage, it doesn't appear that anyone is certain of the impact and possible disruptions this industry will cause for banks and regulators alike.

As with any business involving money, there are inherent risks. Funds in your Venmo account are not always FDIC-insured. Though your Venmo account might show a balance, the funds might not always be securely in there (meaning it is possible for the sender to cancel a transaction after it has been sent). Navigating these grey areas will be something to monitor as the digital wallet space continues to grow and faces increasing regulation. Though cash is king, it might not be long until someone else is wearing that (virtual) crown.

References:

https://www.bloomberg.com/news/articles/2014-11-20/mobile-payment-startup-venmo-is-killing-cash

http://www.foxbusiness.com/markets/2017/03/22/why-venmo-is-so-popular-with-millennials.html

http://www.vodafone.com/content/index/what/m-pesa.html#

https://www.theatlantic.com/business/archive/2016/10/cfpb-prepaid-venmo/503000/

https://finance.yahoo.com/news/google-wallet-and-venmo-now-under-the-cfpb-not-fast-friends-173126950.html