Venmo bushwhacked by fraudulent activity
Venmo's losses in the first quarter were much higher than anticipatedBy Shawn Knight
Why it matters: Venmo has been a financial drain on PayPal ever since it was acquired in 2013 but as online payments grow in popularity, it could be a valuable asset that helps the company secure a future in digital banking.
Venmo is designed to simplify the process of sending money to friends but this convenience is also being exploited by scammers. According to documents viewed by The Wall Street Journal, the company recorded an operating loss of roughly $40 million in the first three months of 2018.
That's about 40 percent more than Venmo had anticipated and according to the Journal, expenses related to fraudulent charges played a big role.
From January to March, Venmo's "transaction loss rate" climbed from about 0.25 percent of the company's overall volume to 0.40 percent. During that period, Venmo executives forecasted a loss rate of around 0.24 percent.
It's not clear what caused the sudden increase in fraudulent activity or if Venmo was able to identify those responsible.
To combat the losses, Venmo blacklisted tens of thousands of users that its algorithms pegged as suspicious and briefly prevented customers from instantly transferring funds to their bank accounts. The latter feature was ultimately restored but it's now more expensive to use.
The payment service, which is owned by PayPal, also put an end to customers' ability to transfer money through its website (most people use Venmo on their smartphones). This feature has not returned.