Fraud hit Venmo hard in early 2018, leading the PayPal division for peer-to-peer payments to take an unexpectedly large loss due to fraudulent transactions and to shut down some of its features, according to a Wall Street Journal report.
Losses weighed in 40% higher than budgeted, at $ 40 million for the first quarter of 2018. That was reportedly 0.40% of volume, instead of an anticipated 0.24%.
In response, the company limited and shut down certain features, while blacklisting tens of thousands of accounts. This included pausing an instant-deposit feature, which allowed transfer of funds in a Venmo account to a bank account in as little as 30 minutes for $ 0.25. The feature returned later in the year with a 1% transaction fee.
Venmo also stopped allowing transactions from its Web site, requiring all payments to happen via its app. While 98% of users relied on the app already and only 2% used the Web site for transfers, 15% of net losses occurred via the Web site.
The Journal wasn’t able to determine what led to the elevated fraud. Venmo didn’t reply to a request for comment from Fortune.
The company has had few revenue sources in the past and has taken losses on operations since its start. However, it’s slowly shifting into more fee-based services, including letting customers pay for Uber and other services directly from their account balance.
Venmo is one of several companies contending for a vast market of money transfers between people for casual expenses like splitting the cost of a meal to much larger expenses like rent. Competitors include Zelle, run by a consortium of 30 major U.S. banks, and Square Cash, a system operated by the credit-card processing company Square.
Zelle handled $ 28 billion in transfers in the second quarter of 2018. Venmo managed about half that, or $ 14 billion, in the same period. Zelle has an estimated 23 million U.S. users, and Venmo about 27 million.
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