Venmo's 40 million US users show its dominance in the P2P space

This is an excerpt from a story delivered exclusively to Business Insider Intelligence Payments Briefing subscribers. To receive the full story plus other insights each morning, click here.PayPal's strong Q1 2019 was highlighted by results from Venmo that indicate the service's dominance in the US peer-to-peer (P2P) payments space. Additionally, bank-owned P2P service Zelle announced its Q1 2019 numbers, which shed some new light on the industry's competitive dynamic.Here's what it means: Venmo is a force to be reckoned with in the P2P space — but it isn't without competition.Venmo counts 40 million active accounts in the US. That figure, which equates to roughly 14.5% of PayPal's total user base, puts it among the largest platforms in the US: For context, Venmo's user base is comparable to Uber's US user base. The service also posted $21 billion in volume last quarter, marking growth of 73% annually — a slight deceleration from Q1 2018's 80% growth rate, but still a massive gain. The service is on track to hit $100 billion in volume this year as PayPal continues adding use cases like debit cards and in-app payments to the platform.Zelle's volume continues to surpass Venmo as the P2P service keeps growing. Zelle grew 54% to reach $39 billion in volume in Q1 2019 — almost double Venmo's quarterly volume. Zelle's network, which counts hundreds of banks and boasts an addressable base of over 95 million, has the potential to eclipse Venmo.The bigger picture: PayPal needs to continue to expand Venmo's monetization and commerce initiatives to ensure the service has maximum value.There's likely room for both Venmo and Zelle to coexist, given their distinct use cases. Zelle's volume is still nearly double that of Venmo, but as the two firms have grown, their use cases have become more distinct: Venmo's average transaction size is $50, while Zelle's is much larger at $265. These figures indicate that customers are using Venmo for one-off, lower-value social payments, and Zelle for larger, less frequent transfers. This differentiation could mean customers will integrate both into their financial habits, allowing the growth of both services to continue. But PayPal needs to accelerate its monetization push for the service before Venmo further erodes its bottom line. Major P2P gains have been the leading cause of PayPal's declining take rate, as P2P is free for customers and therefore hard to monetize. Venmo's new commerce initiatives are helping the service to generate revenue through fees: In Q4 2018, 29% of customers had used these offerings, and Venmo is expected to generate $300 million in revenue (+50% sequentially) this year. Still, it won't be profitable for several quarters. A continued push into this space, which CEO Bill Ready highlighted in the firm's earnings call, and new ways to deepen engagement, will be necessary to help PayPal make Venmo as lucrative as possible.Interested in getting the full story？ Here are two ways to get access: 1. Sign up for the Payments Briefing to get it delivered to your inbox 6x a week. >> Get Started2. Subscribe to a Premium pass to Business Insider Intelligence and gain immediate access to the Payments Briefing, plus more than 250 other expertly researched reports. As an added bonus, you'll also gain access to all future reports and daily newsletters to ensure you stay ahead of the curve and benefit personally and professionally. >> Learn More Now