Kent Hernández/Fusion

In 2009, a pair of entrepreneurs who were former freshman roommates sat down to make up a name for their new peer-to-peer mobile payment app. Inspired by the Latin “vendere,” meaning “to sell,” and “mo,” as in “mobile,” they hit on a portmanteau that sounded right:Venmo.” Within a few years, their app had taken off and their coinage was so common it's become a verb: “Just Venmo me,” millennials say as they exit Ubers, split dinner checks or pick up drugs from their college dealer.

Launched in 2012 and purchased in 2013 by Braintree, PayPal's parent company, Venmo processed the transfer of $2.4 billion in 2014 and $1.6 billion in the second quarter of 2015 alone. By August of this year, “Venmo” was spawning new words in its own right. “Venvy,” according to Mic, is a subset of FOMO (“fear of missing out”), and describes the feelings of jealousy a scroll through Venmo’s social feed can elicit.

What distinguishes Venmo from its competitors—including mobile apps like Square Cash, PayPal and Google Wallet—is its social aspect. Venmo users, by default, describe every transfer with a memo that is publicly visible to both users’ Facebook friends. (They need to change a setting to make the transfer private.)

To the bewilderment of people over 30, personal finance has become public and social. Completing a transfer on Venmo feels more like chatting with a friend than reaching into your wallet or swiping your credit card. In increasing the psychological distance between the act of spending and the depletion of money from a bank account, Venmo is doing more than making it easier for friends to pay each other back: it’s making it easier for them to spend carelessly.

Venmo gets “people to look and think about the more humorous side of spending—making spending more about other things,” said Dan Ariely, a professor of psychology and behavioral economics at Duke. In other words, when you send a 🍸🌵 message on Venmo, you’re thinking more about a funny way to describe your margarita than the $14 leaving your bank account. (Yes, that’s what we pay for a drink in New York.)


“P2P payment apps such as Paypal, Square Cash, and Venmo all suffer from the notion of ‘monopoly money,’” said Joydeep Srivastava, a professor of marketing and consumer psychology at the University of Maryland. “It's like you are playing a game, which implies that you are going to be less circumspect about making spending decisions.”

The prospect of showing off a purchase or a social event could encourage conspicuous consumption of small things like drinks and cab rides.

Scrolling through my own feed reveals a few patterns. Some memos seem designed to induce FOMO (“Partyy”, “Good times”, “Girls’ night!”). Many are cryptic (“Our future”, “Hmm”, “Life and stuff”). There are purely descriptive messages (“August rent”, “A short cab ride”, "Sweetgreens") and sex jokes (“happy ending”, “Best foot rub in a while”). According to an analysis by Quartz in March, a quarter of all Venmo memos include emoji; presumably, that number has only risen since May, when the company introduced an autocomplete feature suggesting emoji to accompany typed words like “friends” and “rent.” (The two most popular emoji on Venmo are a slice of pizza and a pair of pint glasses; the taxi icon comes in at number six.) Straightforward messages reveal who’s gone to the beach or split a check without you, while ambiguous ones invite users to wonder what they’re missing. If you start feeling left out and want to be involved with this particular social network, it means emptying your digital wallet.


Studies have shown again and again that we’re more willing to part with our money if we don’t have to use bills and coins. In 1990, a pair of psychologists found that customers in a restaurant tipped more generously if they used a credit card: 22.6 percent, on average, versus 15.9 percent if they paid in cash. We’re more likely to spend carelessly with a credit card than with cash; the payment is delayed, and plastic just doesn’t feel like “real” money. Though it hasn’t been directly studied, logic—and psychologists—suggest that we might be even more prone to reckless spending on an app.

“When paying for a book with cash, it is very clear that one is spending money, and exactly how much money is being spent,” explained Carey Morewedge, an associate professor of marketing at Boston University. “When paying for the same book with a credit card, there are fewer reminders that money is being spent and exactly how much money one is spending. This reduction in transparency reduces the ‘pain of payment’: It feels less psychologically ‘painful’ or discomforting when buying a book with a credit card than with cash. By acting as a middleman, apps like Venmo may reduce payment transparency and the pain of payment.”

Venmo did not respond to a request for comment about the theory that it's making its users spend more money. While there haven't been any experiments run on Venmo's effect on spending, researchers have found that people are willing to pay twice as much when using a credit card instead of cash. MIT professors Drazen Prelec and Duncan Simester invited 64 students to bid in an auction for two pairs of tickets, one to a baseball game and the other to a basketball match. Half were told that if they won, they would have to pay in cash, while half wrote down their credit card information and were led to believe they’d be paying that way. As Prelec and Simester expected, the people in the “credit card condition” were willing to pay significantly more than the ones who were paying in cash: they offered, on average, $60.64 for the basketball tickets and $15.92 for the baseball game, versus $28.51 and $9.02.


Creating a direct link between a user’s phone and bank account might also encourage spending; having access to—or even just thinking about—a big sum of money can make a small purchase seem less significant. In a 2007 study, psychologists primed 115 shoppers to think about either large or small sums of money just before entering a grocery store. Those assigned to the “small account” condition had to check off which of five items— pictures, library cards, credit cards, photo ID, and cash—were in their wallet at that moment, while the people in the “large account” condition were asked whether they had five types of financial accounts (checking, savings, bonds, stocks and certificates of deposit). When the experimenters looked at the shoppers’ receipts later, they found that the people who had answered questions about their savings accounts spent about 36 percent more than the ones who had discussed the contents of their wallets.

Even if purchases on Venmo are impulsive, though, they aren’t necessarily a waste. As Colby College psychologist Travis Carter said, “If it encourages people to spend their money in ways that are more likely to involve other people—experiences vs. possessions—then even these potentially regrettable purchases are going to deepen social connections in ways that increase happiness.“

Alice Robb is a writer in New York.