Electronic mobile payment application allows students to pay for rent, drugs, but detracts from the traditional transactional experiences

A student browses Venmo. According to professor Ben Zhao, while Venmo has an alluring social media front with a payment newsfeed for friends and acquaintances, its social model has no “sticking power.”(Christine Skari/Daily Nexus)

A student browses Venmo. According to professor Ben Zhao, while Venmo has an alluring social media front with a payment newsfeed for friends and acquaintances, its social model has no “sticking power.” Christine Skari/Daily Nexus

“Can I just Venmo you?”

It’s an increasingly common phrase uttered by tech-savvy students looking for speed and convenience in their manic lives.

Venmo, the mobile wallet app that allows users to instantly transfer money to each other free of charge, has transcended into the realm of verbs to join the ranks of “Snap,” “Vine,” and “Yak” as well as its gracefully aging forefathers “Google” and “Tweet.”

In app-driven, social-media-dominated college environments like UCSB, Venmo represents another step in the larger trend of students transferring traditional social interactions into the digital realm. The app is quickly becoming an essential component to day-to-day living, with increasing social pressure to participate in its financial network.

Second-year economics major Evan Kudler is one such student. He first picked up Venmo because his friends requested he pay them through the app instead of in person with cash.

“Over the summer we were going out to lunch and someone wanted me to pay them so they asked me to get a Venmo instead of paying with cash, because it’s easier than cash,” Kudler said.

Fourth-year English major Julian Levy uses the app because it “simply works.”

“It solves a real problem,” Levy said. “Having to split bills and pay people back is a real pain. It’s a good app and it works so I’m okay with it. It works, it does what it’s supposed to do.”

Users can connect their credit or debit cards to their account, or even directly connect their checking account to Venmo. Monetary transfers are made instantly, while cashing out money accumulated on the service to a bank account will require one business day. For users of the app, tasks like splitting a check after a meal or splitting gas money for a shared ride are made easier.

According to third-year double major in political science and history Jose Hernandez, “quite a few” of his friends are using the app now to exchange money when physical bills are not available.

“When I don’t have cash, I ask a friend if they have Venmo as well,” Hernandez said.

In the fourth quarter of 2013, Venmo was purchased by eBay, who also acquired PayPal in 2002 — arguably the biggest, if not oldest, name in online payment platforms. According to PayPal’s final quarterly report for 2014, Venmo processed $906 million in that quarter alone. Services like Venmo, or Apple Pay, Google Wallet and even Snapcash, L.A.-based Snapchat’s recent entry into the field, are advocating for ease, simplicity and “coolness” over seemingly antiquated bills. According to many users, what separates Venmo from other mobile payment apps is its social news feed.

The Social Factor

Venmo representative Lisa Kornblatt envisions the service as having a “natural virality aspect to it.”

“We don’t break out our user base,” Kornblatt said in an email, “but as more people move to mobile and share payments via Venmo with their network, our user base will continue to grow.”

Professor of computer science Ben Zhao said he recognizes the potential power of Venmo’s social allure, particularly in its ability to prompt users to get their friends and acquaintances to download the app.

“I think there is some network effect to it,” Zhao said. “If I want to pay you back and all I use is Venmo, then I’m going to convince you to use Venmo so I can make my life easier.”

According to Kornblatt, Venmo straddles the e-payment and social media worlds, and the company considers cyber payment processes to be as natural and social as if two people were to exchange cash in person.

“Venmo was built with a social news feed as payments between friends/family are inherently social,” Kornblatt said in an email. “As many people are so accustomed to social media platforms, the social feed is an attractive feature to many of our users.”

But according to Zhao, while there is an initial charm generated by the social news feed of the app, its social model has no “sticking power.”

“It’s not quite clear how that’s going to stick around,” Zhao said, “I think the incentive for new users to buy in is not that strong; it’s cute to see your friends passing cash back and forth but that novelty wears off, I would think, after a while.”

For many students, including second-year economics major Noah Newman, the social feed is “slightly entertaining,” but ultimately a vapid feature.

“It probably attracts more people into it, but it’s really not that interesting,” Newman said. “That whole feed thing, it doesn’t really do much. Some of the payments are kind of funny but I don’t really get much out of it.”

Levy agrees that the social feed is “fun” but essentially useless.

“I always try to write the most embarrassing stuff possible,” Levy said. “I don’t think I’ve ever seen a serious reason. I think the social aspect is kind of pointless.”

When paying someone back, the app leaves a blank field where users must specify what the payment is for, such as “$10 for food” or “$13.50 for gas,” a policy that forces the payment process to be semi-public and interactive. Comments on the long feed can range anywhere from the mundane to the lewd, like “for striptease” or “for drugs.”

Scroll down on a Venmo feed and you’ll likely see at least a few friends that say they have bought “drugs” recently — but there are in fact people who use the service to buy illegal substances.

Rent, Drugs and Rock ‘n’ Roll

Third-year economics major Michael, whose name has been changed on condition of anonymity, said Venmo has made purchasing illicit drugs easier by eliminating the risks associated with carrying paper money.

“The sketchiest part of buying them for me is exchanging cash,” he said. “You can just get a drop-off much easier because you’re not really trading stuff around.”
Kudler said he uses the service for more than just splitting the costs of a night out — he uses it to collect payments from his roommates, then pays his monthly rent with a check. He said he uses it because the “cashing out” process through Venmo is faster than it would be than to process the same amount of money between two banks.
Fourth-year psychology major Neha Pearce, who first heard about the app last quarter, uses it for rent as well.
“My housemates bugged me to get it,” Pearce said. “We use it for rent. I don’t actually have a bank near here so it’s really helpful because a lot of times I can’t get cash.”
Despite the fact that Kudler uses Venmo to pay his rent, he said he still has reservations.
“Doing rent on [Venmo] does feel a little weird,” Kudler admitted. “Having that much money on a little account that you can just press a little button and get rid of it all of it. One button and you can lose $3,000.”

Secure or Not Secure?

Fears regarding the security of electronic payment apps are not isolated, as other students have echoed Kudler’s sentiment that transferring large sums of money through mobile platforms can at times be discomforting.

Newman said he only uses Venmo for small-scale payments out of security concerns.

“I don’t pay rent with it,” Newman said. “But I do use it for bills and other random small payments.”

Levy said despite his reservations, the app’s “good reviews” have convinced him that it is reliable enough.

“It’s linked to my checking account so if anything goes wrong, I’ll be screwed,” Levy said. “But it’s probably the number one app, so I’m not too concerned about it getting broken into.”

Computer science professor Stefano Tessaro, who studies theoretical and applied topics in cryptography and computer security, said the general platform is in fact the most secure element of digital transactions.

“It appears that more than enough is being done for these apps, and that potential attacks will exploit very subtle mistakes, rather than basic design flaws,” Tessaro said.

According to Tessaro, client-side security measures like passwords or theft of the physical device itself would be more vulnerable to a potential threat than a security breach on the company’s side.

“In contrast, the biggest threat at present comes from attackers obtaining physical access to a device. Traditional methods like P.I.N. codes and passwords remain the weakest link,” Tessaro said. “One should compare all of this with the risks associated with the theft of an actual wallet, and with other privacy issues a smartphone loss may result in.”

Zhao, a fellow member of the computer science department who specializes in privacy, security and data mining, suggests the real targets behind major security breaches are the larger institutions and tech platforms.

“I think these days the security problems that are the worst are not so much really focused on individual users. I think they’re all focused more on the backend,” Zhao said. “I think perhaps users individually are getting a little bit lax [with security], but it’s the backend who are really getting targeted — and they’re not lax.”

According to Tessaro, pre-existing security concerns with traditional payment methods have made consumers more willing to accept security risks with new technology.

“One could first simply say that people go for convenience and coolness, rather than security,” Tessaro said. “Conventional credit and debit cards are already an extremely weak link in the payment industry in terms of security … There are so many risks: from thefts and stolen numbers, to lack of proper authentication and massive data breaches. Still, we use them on a daily basis and somehow cope with all of these risks.”

The Future Is Now

Even if Venmo and other mobile pay apps can successfully quell fears over the security of their platforms, the question remains as to how viable Venmo and Apple Pay will be as long-term replacements for traditional payment methods.

Currently, Venmo’s plans to expand their user base depend on users spreading the service through word of mouth. According to Kornblatt, the company plans to integrate Venmo into other apps.

“P2P payments was always our first step with the intention to enable to pay with Venmo in many of their favorite apps,” Kornblatt said.

Zhao said mobile payment apps may become popular enough to compete with the credit card model.

“In some sense it’s like a credit card model, the difference being that the fees are going to be a littler smaller and lower than credit cards to compete better. The business model works nicely,” Zhao said. “As far as user experience goes it’s as cheap as it gets.”

According to economics professor Douglas Steigerwald, there is no large difference between the credit card model and apps like Venmo and Apple Pay.

“The issue is who is the intermediary,” said Steigerwald. “Who is going to transfer the money from the purchaser to the seller? How secure is that transaction, and how much that transaction going to cost? How much is going to be charged?”

Students like Kudler believe Venmo will remain a niche product for college students who find cash inconvenient.

“I think it’s only a college kid kind of thing at least for right now,” Kudler said. “PayPal’s been around for years, you don’t see people stop using cash.”

Steigerwald said the convenience and reliance on smartphones could be a valid reason as to why electronic payments have the potential to take off.

“I think the purchasers and the sellers are looking for the most convenient way to make the transactions,” Steigerwald said, “and now there are a whole new set of devices. If iPhones come already with an application that makes there a convenient way to transfer the funds, they now have a market entry relative to a credit card company.”

Zhao said PayPal was “a little before its time,” and explains the recent acceptance of the smartphone as an essential everyday item as the primary reason why mobile payment is just taking off now.

“I think it’s the last step of taking what is already viable and secure and making it interface with the user in a real usable way,” Zhao said, “Once that last step is bridged, that’s when we see users really start to pick it up.”

For many students, Venmo will continue to be the preferred way of transferring money, splitting bills or paying friends the next morning in a head-splitting hangover haze for “last night.” But if the importance of smartphones in daily life continues to increase exponentially, mobile payments could evolve past their current niche for millennials and gain mainstream acceptance by people of all ages, worldwide.

A version of this story appeared on page 3 of the February 19, 2015 print version of the Daily Nexus.