Though most of the fanfare behind mobile wallets is around in-store contactless payments, consumers are cutting through the hype and devoting more of their attention to in-app payments.
This trend became a focus of PayPal's strategy in recent months, as the former eBay unit seeks to build on the Venmo payments app it obtained as part of its $800 million purchase of Braintree in 2013.
Following a successful test in December of a new "Pay with Venmo" feature, enabling Venmo users to make in-app purchases, PayPal plans a robust rollout of the technology this year to PayPal merchants, Dan Schulman, PayPal’s president and chief executive, said Wednesday during a conference call to discuss fourth-quarter earnings.
In-app payments are also a big deal for brick-and-mortar companies like Panera Bread, which was one of the launch partners for Apple Pay. The company went to great lengths to support Apple Pay at its counters — it had to deploy compatible terminals to all of its stores despite only eight people other than its senior management knowing about the project — but the real payoff has been in its mobile app.
"Apple Pay in-app has been an extremely positive experience … when you do it, you get a big lift from it," said Brian Backer, Panera's director of enterprise architecture, in a presentation this month at the National Retail Federation's Big Show in New York.
Apple Pay is selected for about 24% of Panera's in-app iOS sales, Backer said, though it has fewer payment options to compete with than Apple Pay does at the point of sale. Panera also lets customers type in a card number or use a card kept on file for in-app sales.
However, there is growing competition for in-app purchases, particularly as PayPal moves ahead with its expansion of Venmo.
So far, Pay With Venmo works with in-app payments for only two merchants, ticket-seller Gametime and food-delivery service Munchery, and it’s limited to iOS users.
During the second half of this year, PayPal plans to expand Buy With Venmo to the PayPal merchant base, following a similar strategy to the way it expanded streamlined One Touch checkout option to its merchants during the fourth quarter of 2015, Schulman said.
In this manner, PayPal's strategy echoes that of Barclaycard, which sought in 2013 to transform its popular P-to-P app, Pingit, into a commercial payments option called Buy it.
Venmo is the fastest-growing example of the current wave of P-to-P apps, and it has a strong following among millennials, said Talie Baker, an analyst with Aite Group who follows the P2P niche.
Venmo users have been asking to use the payment option to other channels, Schulman said, and merchants are eager to attract Venmo’s users to mobile commerce.
"Many merchants want the Venmo button, because it’s the way millennials think about managing and moving their money, but many merchants may just want to keep the PayPal button and we’ll integrate that user base of PayPal—with Venmo users—right into that," Schulman said.
Speed and simplicity are crucial to millennials shopping online, and Pay with Venmo addresses that need, according to PayPal. San Francisco-based Gametime, founded in 2012, provides last-minute concert and sports tickets in 35 U.S. cities. The company emphasizes convenience in its app’s streamlined two-tap purchase process that bypasses ticket-printing by downloading tickets directly to customers’ phones. Gametime says it takes nine seconds for users to purchase tickets.
Munchery, another San Francisco-based company that launched in 2012, enables consumers to order meals that its chefs cook for immediate delivery. Customers may order that day or up to a week in advance, choosing from menus that change daily. The service is available in the San Francisco Bay area, Seattle, Los Angeles and New York.
Pay with Venmo has a good shot at success because its users already trust the Venmo brand, Baker said. Even so, many consumers are still warming up to mobile payments, so it may take time for the service to gain awareness. "It's going to take some education to get consumers over the hump," she said.
Schulman cautioned that Venmo remains a small part of PayPal’s overall base, but he expects to see the brand as a whole begin to make a financial impact in 2017 and beyond. Venmo processed $7.5 billion in payments in 2015, up 213% over the previous year, Schulman told analysts.
PayPal generated $1.8 billion in cash in 2015, the company reported on Jan. 27. It added a record 6.6 million new accounts during the fourth quarter, including 1.6 accounts from Xoom, the cross-border remittance company PayPal acquired last year.
PayPal ended the year with more than 17 million new accounts, bringing the total to 179 million active accounts, the company said.
Daniel Wolfe contributed reporting to this story.