How Do Payment Apps Make Money?

The COVID-19 pandemic has ultimately placed many people under quarantine for so long and payment providers have made it easy for us to make payments online seamlessly. It happens so fast with a touch of a button and deposits can easily be made by connecting them with your credit card.

Some of the popular service providers include PayPal, Venmo, Cash app, and many more. It is, of course, a great competition between them with certain apps providing special perks over the others giving us the users a greater choice of payment apps to choose from.

So the question remains. Why these companies are in a race to promote their own services? If users are not imposed fees then how do they generate any sort of profit?

Here we would like to share with you some insight regarding this matter and the opinions below might hold the key to an answer to these questions.

Still Have Not Generate Any Profit

Yes, that's right! It is safe to say that most payment service providers through these apps have not generated any profits whatsoever. If you've noticed, many payment apps are in a race to give the best benefits to their users whether it is in the form of cashback, vouchers, and even free gifts to increase their user base.

Some people believed that most payment apps are focusing on the long-term development plan as of now which is to get as many customers as they can to try out and use their payment apps. This is without taking into account any profit that they may or may not generate from them.

Commissions & Transaction Fees

Most renowned payment providers will operate on a business model that requires its users to make monthly payments or subscription-based like credit replenishments, paying bills and e-commerce businesses.

For every deposit made by the users into these companies, the payment providers will often get commissions from it. The commissions paid are often paid in percentages from the deposit amount or a certain rate based on each transaction.

For utility payments such as electric bills, telephone bills, and other, the payment provider will partners with other service providers and gets certain commissions for the referrals. However, it can be that the payment apps only make money off the transaction fees alone.

When we look at e-commerce, the payment apps that offer this service will obtain commissions from each sale made on the e-commerce platform whether it will be on specific products from the brands or the sellers.

The commissions will depend on the type of products and commonly range from 0 to 20% of the sales value.

Loyalty Programs & Ease of Payments

There are many popular e-commerce platforms all over the world comprising Amazon, Ali-Baba, Shopee, Lazada, eBay, and many more. Interestingly enough, the e-commerce platform provides its own payment service providers without a third-party service.

Despite the use of such wallets being only limited to specific websites (as of now), it has definitely eased the process of payments for customers to make their purchases quickly and securely.

Therefore, the customers will not have to worry about the possibility that their banks are under maintenance and they cannot make the purchase during the limited-time crazy sale. There are also many vouchers to choose from which will entice the customers in purchasing even more.

Making their own payment apps will indirectly force the customers to make a purchase only within this platform compared to other e-commerce websites. Some platform also does not allow their users to withdraw money into their bank account meaning that customers can only spend it there. 

Bank Interest

When the customers deposit money into the apps, the company will then place this money into the company's banks. From these deposits, the payment apps have the right to the interest gained from the money.

This theory is perhaps not convincing enough for payment apps to sustain their businesses as the interest gained from banks is relatively low. But you can just imagine the amount of money gained from this process if the number of deposits reaches billions of dollars.

Data Selling

Have you ever heard of the term, "Data is the new gold?". With all the data obtained from the customers for using their services, the payment apps company can then sell these data to other parties that require them for advertising for instance.

These data are crucial to ensure the effectiveness of their advertising campaign which will be focused on specific groups only.

If you were to look on Facebook, despite the users being able to use it for free, we are aware that Facebook uses the data that we provide to ease the process of advertisers in promoting their campaigns to specific users.

In reality, only a few payment app providers will be able to strategize accordingly to generate the best revenues. Even if the users can use such services for free, we should realize that in this world, nothing is truly free.


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