Venmo Payment Fraud Leads To $40M In Losses

Venmo, the digital money transfer service owned by PayPal, suffered payments fraud earlier in 2018 that played a role in the company posting losses that were higher than forecasted for the first quarter of this year.

The Wall Street Journal, citing internal documents it reviewed, reported that for the first three months of 2018 Venmo had operating losses of around $40 million, which was close to 40 percent bigger than what the company had planned for. The Wall Street Journal noted that expenses due to fraudulent transactions, otherwise known as the transaction loss rate, increased to 0.40 percent of overall volume at Venmo in March compared to 0.25 percent in January. The transaction loss rate includes losses due to fraudulent charges.

The paper noted that its fraud woes haven’t been reported before and underscore how these vulnerable services that let people easily send money to friends and family can be exploited by fraudsters.

Keeping hackers at bay has long been a problem for banks and FinTechs.

The paper noted that the increase in fraud at Venmo caught executives by surprise, and even prompted some executives to express concern that parent PayPal would miss first-quarter earnings results as a result. “This would have a major impact on our stock, brand, and position in the market,” wrote Benjamin Mills, Venmo’s top product executive, in an email to employees on March 22, reported the Wall Street Journal. “We cannot let that happen.” A spokeswoman for PayPal told the paper that during the first quarter Venmo rolled out new features, and that short bouts of higher losses usually happen following such rollouts. She said the loss levels for Venmo for the first quarter were under 0.35 percent and are now lower.

“Venmo loss levels are lower than the overall average for PayPal and compare favorably to the industry,” she said.

To combat losses, the payment service suspended the ability for customers to transfer funds instantly to bank accounts and kicked off tens of thousands of users that algorithms found to be suspicious, noted the report. It also stopped enabling customers to send and receive money through the website. While that helps reduce fraud, the WSJ noted that real users were also impacted when their transactions were declined. “I’m pissed that it’s come to this and that we have to hurt our customers to try and get our loss numbers under control,”  Mills wrote in the March 22 email, noted the WSJ. The paper noted that with Venmo, fraudsters can load stolen credit cards onto new profiles and send money to accomplices — or hackers can take over accounts and steal money from existing users.

Venmo typically reimburses customers for any money they lose in a fraudulent transaction, noted the paper.

In a subsequent statement to PYMNTS, Venmo said: “In Q1 of 2018, Venmo had multiple new features that were introduced and received exceptional customer demand. As loss patterns emerged, the Venmo team quickly updated the new features to prevent losses and protect customers. With the new instant transfer feature, that meant suspending the new feature for a few days and then reintroducing it. Suspending that feature temporarily was the right thing to protect customers. Venmo users have continued to enjoy those new features with Venmo’s protections against unauthorized access and at loss levels that are inline or better than our expectations.”