How Does Venmo Work And Is It Safe?

Is Venmo Safe To Use?

Venmo uses data encryption technology to protect your account information, which means no one else can access your credit card or bank account. Venmo users who want an extra layer of security features can set up a PIN code for logging in and a thumbprint scan option for mobile devices that allow it.

Users should always be aware that – as with any digital or mobile transaction – there’s a risk of a data breach. That’s why it’s smart not to store large amounts in your Venmo app but instead to transfer them to a linked bank account. As mentioned before, you should also verify that you’re sending funds to the right person before transferring any money.

Common Venmo Scams: What To Know

The best way to avoid potential scams with Venmo and other money transfer apps is to be extra careful about whom you send money to. According to the U.S. Federal Trade Commission, scammers might claim the following:

• That they’re friends or family members in distress.
• That you’ve won a prize, but you need to pay fees to get it.
• That they’re your bank and try to get you to transfer money into a new account.

Again, it’s very difficult to get money transferred from P2P apps back into your account. Be extra careful with any P2P payment app.

Getting Started With Venmo

To start using Venmo, download the app and connect it to your bank account or credit card by following the instructions on the app. It becomes part of your “mobile wallet,” which means that you can make payments conveniently right from your mobile device.

You can add friends to your Venmo app to ensure that you’re paying the correct person for your purchase. You can also pay anyone via Venmo, even if they’re not your “friend.” But always confirm when making a transaction that you’re sending it to the right person; if you send it to the wrong “Susie Robinson,” Venmo won’t reimburse you. It’s wise to add a photo to your profile so your friends know they’ve found the right person.

P2P Payment Meets Social Media

Venmo has another fun side, since it functions a bit like its own social media channel. When you send your pal the $25 for the dinner bill, you can add an emoji, like a salad or burger, along with the amount.

You can also view other exchanges from people you know when you scroll through your “activity” feed, where you’ll see what your friends were sent or paid. If you don’t want people to see who you’ve paid and what for, you can make those settings “private.”

Is Venmo Free To Use?

In general, Venmo is free when you use it on a P2P money transfer basis, exchanging money among people you know. But in some cases, Venmo charges a fee. These transaction fees are primarily how Venmo earns money. Let’s discuss a few situations in which you might encounter this fee.

Instant Transfer Fees For Checking Accounts

Need money in the bank rather than in your Venmo account? Venmo can put money into your checking account instantly – for a 1.75% fee. If you’re willing to wait up to 2 business days, Venmo will transfer the funds for free.

Processing Fees

You can make your Venmo payment from a bank account or debit card that’s linked to your account for no additional fee. But if you link a credit card to Venmo, your charges will incur a 3% processing fee. The credit card company, not Venmo, levies the charge and passes it on to the user.

Payments To You Are An Exception

If you initially set up your Venmo account with a credit card and have built up your account balance through transactions being paid to you, any future transactions covered by your balance won’t incur the credit card fee. Say that you owe someone $50, and you have $75 in your account from past exchanges. That $50 would come out of that reserve rather than from your credit card. But if you paid someone $100, that would eliminate your $75 Venmo balance and also charge $25 to your card.

Merchant Fees

While technically designed for P2P transactions, millions of merchants accept Venmo. Paying a merchant is free for you; those who accept payment through the Venmo app will owe a transaction fee. Merchants can expect to pay varying amounts for the fee based on the transaction types:

• Direct payments from other Venmo accounts: 1.9%, plus 10 cents of the payment total.
• Promotional redemption payments: 1.9%, plus 10 cents of the payment total, and an extra 2.9% when a customer redeems a promotional offer.
• Contactless Tap to Pay transactions: 2.29%, plus 10 cents of the payment total.

Venmo Offers Other Products

Venmo is no longer just about peer payment fintech. Let’s take a look at their credit card and debit card offerings.

The Venmo Debit Card

Venmo offers its own debit card, which is linked to your Venmo account balance and can be used to pay for items at retailers. The card works on the Mastercard network and is accepted everywhere that takes Mastercard, including ATMs.

The Venmo Credit Card

There’s now a Venmo credit card available to certain customers. The Venmo Visa card offers cash back on several categories of purchases, including transportation, groceries and travel.

How Does Venmo Work With Taxes?

If you’re just using Venmo to buy your friend a latte or sell your old skis, you’re safe: It’s not necessary to report P2P payments to the IRS. But if you’re doing business on the Venmo app, you might need to report any transactions that surpass a certain threshold on your tax returns.

For the 2023 tax year, that amount was over $20,000 in gross payment volume and over 200 payments in one calendar year.

Bottom Line

If you’re considering new ways to make payments, P2P apps are an easy and relatively safe way to do so. Plus, Venmo is an essentially free payment method.

Just remember that it’s real money you’re transferring around, and those happy hours and personal services can add up. Download the Rocket Money^SM app today for help setting a budget and sticking to it.