The Rise of Mobile-Payment Apps
Mobile technology has changed the way people exchange goods and services every single day, especially among younger generations. As eCommerce has grown, so have mobile wallets, reducing the need for cash or paper checks. Applications like PayPal and Venmo have taken things one step further by making peer-to-peer (P2P) money transfers convenient and user-friendly. They’re great for splitting dinner checks or paying back a friend for a movie ticket. These spontaneous, one-off payments between friends and family are where such services thrive.
Using P2P apps like PayPal and Venmo to collect rent payments, however, can be surprisingly costly in the long run. Let’s examine the downside of using these apps for your business.
Why PayPal and Venmo Fall Short for Rent Collection
Though there are several related apps to facilitate mobile payments, we’ll focus on two of the most popular platforms: PayPal and Venmo. Both are free to download and available for users to connect to their desired bank account to fund balances and make payments. Despite their speed and simplicity, they have shortcomings that may inconvenience landlords:
If you are using PayPal or Venmo to collect rent, you need to be sure that you are using a business account to do so. Business accounts come with additional fees (see Fees section of this article), so many landlords try to bypass this by using a personal account. This is a direct violation of their User Agreements. Here’s what Venmo has to say:
“Venmo may not otherwise be used to receive business, commercial or merchant transactions, meaning you CANNOT use Venmo to accept payment from (or send payment to) another user for a good or service.”
Seems pretty clear-cut.
As a landlord, you are providing both goods and services to your tenants. If you are accepting their rent payments using personal accounts, PayPal or Venmo may flag your activity. Rent payments are especially prone to triggering suspicion, since they tend to be a sum of money larger than many personal exchanges, made in the exact same amount every month and made around the same time each month. Aside from the obvious risk of Venmo or PayPal shutting down your access to their platform, dabbling in any form of rent collection that may be deemed illegal is ill-advised. We’ve seen landlords lose out on collection or fail to successfully evict for far less.
If want to establish a proper business account for rent collection, you most likely need to use PayPal. According to Venmo:
“You may only use Venmo to pay for goods or services using a Venmo card at merchants that accept the card or through mobile websites or apps that are approved to offer Venmo as a payment option.”
PayPal is a bit more business friendly in this regard and does not offer such restrictions if you setup your account as a business account. However, this account comes with fees for the recipient. For each transaction, PayPal charges the seller 2.9% of the total transfer amount + $0.30. As a result, a $500 rental payment incurs a $14.80 charge paid by you, the landlord. The more properties or tenants from which you collect, the quicker you’ll see these transaction fees bite into your profit margins.
- Lack of Control
Using Venmo or PayPal to collect rent payments gives a lot of control to your tenants. Landlords don’t have any way to compel tenants to make their payments. Landlords can’t enforce late fees easily, automate payments or send reminders through the apps.
These apps also accept payments into your account by default when tenants make them. While that may not seem like an issue, having the option to reject payments is a powerful feature for a landlord. This is especially true when landlords are looking to evict a tenant for overdue payments. If a landlord accepts a partial payment (of any amount) from a tenant, it may nullify or delay the landlord’s ability to evict. Landlords are entitled to their payments in full, so having the ability to decline partial payments is important.
- Limited Protection
Landlords also have limited protection when they use mobile payment apps. PayPal, for instance, is known for heavily favoring buyers (or in this case, tenants) should a dispute occur. When issues do arise, PayPal can hold the funds, making them unavailable for use. The fee incurred with business accounts does provide buyers and sellers with Purchase Protection. However, PayPal states that it will not cover any purchases made related to real estate.
Venmo’s buyer/seller protection isn’t any more promising. In fact, it’s less promising:
“Venmo does not offer a buyer or seller a protection program for any transactions conducted using the Venmo app or Venmo.com, regardless of the nature of the payment (or charge).”
If you use these apps and encounter payment disputes with tenants, it’s unlikely that you’ll walk away satisfied with the way that either platform handled the dispute.
How Property-Management Software Helps
PayPal and Venmo certainly have their advantages for all sorts of situations, but rent collection is not one of them. As a landlord or property manager, you’ll likely be better off choosing a platform that is specifically designed for this task. Landlords have a variety of property management software options available, each with their own strengths and weaknesses. The one commonality between them is that they are designed specifically to mitigate the challenges listed above. From automated payments, due-date reminders and late-fee enforcement, property-management software directly enhances a landlord’s efficiency. Here are a few specific ways it can help:
- Lower (or No) Fees.
Nearly all rental management software will be significantly less expensive on a transaction-by-transaction basis than the professional fees PayPal charges. Innago, for example, is 100% free for all landlords and property managers. Each of the rent-collection features that this article outlines below (plus additional features like tenant screening and lease signing) are available to users at no cost.
- Built for Rental Management Policies.
Rentals are a unique marketplace unlike just about any other. Applying typical eCommerce practices and policies to rental collection leaves major shortcomings. Property management software is designed for this unique industry, and as a result, makes it particularly easy to enforce your policies. These programs typically offer tools to prorate rent amounts, set and enforce late fees, and create recurring invoices. Reminders, payments, and messages can all be sent digitally and automatically.
- Better (Collection) Reports.
A property manager or a landlord’s job doesn’t end once he or she collects the rent. Property management software will typically offer additional insight into the overall health of your cash flow. Typically, you can easily filter data by fields like property, date range, invoice type, and more. Innago sweetens the deal by allowing users to export data to CSV files (compatible with most any accounting software) and integrating directly with Quickbooks.
- Software Support and Protection.
This isn’t true of everyone, but good software comes with good support. For example, if you or your tenants ever experience issues, Innago provides you with a single, dedicated account representative. This person will take the time to learn about you and your business, and you can reach this person directly anytime via phone or email. Issues inevitably arise with rent collection (someone paid something by mistake, they want to use a different bank account, etc.). Whatever platform you choose, make sure they offer support that will actually help you.
- Innago Offers Express Funds Delivery.
This is a bonus advantage and is not true of most property management software. Rental payments made on Innago reach your bank account after just one business day. Venmo and PayPal will transfer funds between their own apps instantly, but like most property management software, take 3-5 business days to send those funds to your bank account. Many of these platforms (including Venmo and PayPal) offer express payouts, but they typically carry an additional fee.
We wholeheartedly believe that accepting rental payments online will have a significant, positive impact on your business. Most landlord’s we speak with shudder at the idea of going back to the prehistoric days of paper checks and cash. Online payments, particularly mobile online payments, increase speed of collection, reliability, transparency, and simplify your life. But that doesn’t mean that every mobile payment app is created equal. When determining whether or not you want to use PayPal, Venmo or some other modern digital cash app to collect rent, be sure to consider how they fit with your business and your needs. In all likelihood, there’s a better fit out there for you.