Venmo – Understanding the Payment App

In the process of reviewing thousands of tenant files annually, we are seeing rapid growth in Venmo and PayPal transactions on bank accounts. We often receive questions from property managers regarding how to handle these transactions, with the primary question being, “Is this income?”

What is Venmo

Venmo is a peer-to-peer (P2P) payment app available on iPhones and Android phones that allows for the quick and easy exchange of money directly between individuals. Founded in 2009, Venmo began as a text message-based payment delivery system. Then, in March 2012, the company introduced a platform with an integrated social network, in an effort to capitalize on the growing P2P economy. Less than six months later, Braintree, the mobile payment system used by Airbnb, Uber, and other e-commerce companies, acquired Venmo. Less than one year after that, Venmo enjoyed a huge boost in users, when the payment company PayPal acquired Braintree and rapidly monetized Venmo’s user base.

How Venmo Works

After installing the app on their phones, then linking their Venmo accounts to their credit card, debit card, or checking accounts, Venmo users can instantly begin exchanging funds among one another, with Venmo functioning as a virtual fiscal intermediary. In other words, Venmo may be seen as a middleman between the two bank accounts of the two users conducting a payment transaction.

Consider the following example: Sally agrees to sell Mary a bracelet for $50. Instead of transacting with Mary’s bank account, Mary sends Sally the funds via Venmo, which then raises the balance in Sally’s account by $50, while reducing Mary’s Venmo balance by that same amount. In this way, a Venmo balance is essentially a virtual ledger that represents funds trading hands, without actually executing transactions outside the Venmo platform. Therefore, until Venmo transfers the balance into the recipient’s bank, the money is not technically in that user’s possession.

How Should Venmo Transactions Be Handled?

If managers see consistent deposits from Venmo, the applicant/resident should be asked to provide an explanation. While most Venmo deposits will be sporadic and non-recurring (and thus not counted as income), there are cases when the deposits may be regular and recurring and will represent income to the household. For example, in the scenario shown above, if Sally regularly sells jewelry via Venmo, this would constitute income and should be handled in much the same way as a self-employed person’s income would be handled. Gathering the most recent four to six bank statements and projecting annual income from the deposits would be a reasonable approach to handling the deposits.

In short, Venmo deposits should not be ignored, but should be investigated to determine if they represent income to a household that must be counted for housing purposes.