Businesses Can Soon Accept Payments Through Venmo The move marks a major step in the popular app's evolution.

By Leena Rao

This story originally appeared on Fortune Magazine

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Payments giant PayPal laid out plans Wednesday to start making money from Venmo, its fast-growing service that lets people send money to each other using a mobile app.

For the first time, it will let merchants accept payments through the service instead of just catering to consumers. The decision marks a major step in Venmo's evolution from a popular replacement for cash and checks into, potentially, a real business.

Venmo, which is popular with the millennial generation, lets people link their debit and credit card accounts online and digitally transfer money to anyone. People often use the service to settle up after a night out on the town with friends or when splitting the cost of a gift.

PayPal, which reported third quarter earnings Wednesday afternoon, revealed that Venmo handled $2.1 billion in payment volume during that period. That was triple the $700 million sent through the app in the same quarter in 2014.

PayPal CEO Dan Schulman told analysts on a call Wednesday that the average Venmo user sends money through the app multiple times per week.

Transferring money through Venmo is free in the U.S. if the person who is paying draws the money from a bank account. If drawing from a credit card, that person is charged 2.9 percent of the amount transferred.

But despite Venmo's growth, PayPal has yet to turn the service into much of a money maker. That will soon change, according to Schulman, who said he will soon test letting merchants accept money through the service.

Schulman said that he will target merchants that already accept payments through PayPal, Venmo's sister service. Currently, PayPal charges merchants 2.9% on transactions, plus an additional 30 cents. During the tests, merchants will be able to use Venmo for the same price. Customers using their debit card accounts to pay won't be charged any fees.

Venmo will be "fully monetized by the end of next year," Schulman said.

Mobile peer-to-peer payments is growing faster than expected, according to research firm Forrester, and will reach $17 billion in transaction volume by 2019. But there's also a good amount of competition, including services from Square, Facebook, MasterCard, and Snapchat.

But PayPal has an advantage against its competitors: a larger base of users. According to Forrester Research, 73 percent of American adults who use the Internet and make digital payments to friends and family already use PayPal. With its reach, PayPal may have an easier time encouraging people to use Venmo.

PayPal acquired Venmo through its $800 million acquisition of payments processor Braintree in 2013.

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Leena Rao is a senior writer at Fortune.

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