Why is Venmo considered currency?

By Nate Smith | Broadcast Reporter

Venmo may be one of the best apps ever created, plain and simple. It is quite possibly the easiest and most efficient way to pay someone without using cash. I use it almost daily, and I’d be willing to bet most people do the same. But how exactly does it work? Why is Venmo a viable way to transfer currency?

To be perfectly honest, up until I began writing this I had absolutely no clue how or why Venmo works. All of this time I’ve basically seen money that’s in my Venmo account as fake, or as I like to call it “Monopoly money.” This has led me to essentially see any purchase that I make with funds in my Venmo account as “free.” For all sorts of obvious reasons, that is less than ideal. But now that’s changed! Now that I finally have a grasp on how Venmo really works, I can actually use my Venmo the same way that a more responsible human being would. Hopefully I can help you do the same.

With that in mind, I’ll start with some of the basics of Venmo. If you have a Venmo account, I’m sure you’re aware that in order to transfer money, your account must be linked to your bank account. This is in place for a couple of reasons. The first being so that you can claim the money that is sitting in your Venmo account by transferring it directly into your bank account. This can be done for free with a time table of one to three business days, or you can transfer the money instantly for a fee of 10% of the transferred amount. The second is to cover the difference if you attempt to transfer an amount of money that is greater than the number sitting in your Venmo account.

Now that we’ve covered the basics of how Venmo works, it’s time to answer what has always been my biggest question. How does money hold its value while it’s in your Venmo account? Although I could never muster the brainpower to answer this question for myself, after looking through the Venmo User Agreement I found that the answer was actually pretty simple.

Venmo’s User Agreement states the following, “Unless you add funds to your Venmo account using Direct Deposit, any money sent to you on Venmo represents an unsecured claim against us and is not insured by the Federal Deposit Insurance Corporation (FDIC). We combine your money with the Venmo money of other Venmo users and hold it in a custodial account for the benefit of our account holders. With the exception of funds in accounts that have used Direct Deposit, we invest the money in liquid investments in accordance with state money transmitter laws.”

Essentially, this means that the reason the funds sitting in your Venmo account hold their value is because although the money is not directly backed by a bank, it is backed by liquid investments made on the behalf of account holders by Venmo.

I hope that this has given you some sort of clarity on how exactly Venmo works, because I know that it helped me. If not, please remember this: money in your Venmo account is actually very real. It is not “Monopoly money,” and believe it or not purchases that you make with your Venmo aren’t actually free, even if it may feel like it.