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PayPal owned peer-to-peer (P2P) payment app Venmo is testing a new feature that allows consumers to shop in brick-and-mortar stores with a physical debit card that's linked to their Venmo account balance, according to Recode.

This new feature will help the P2P company in two key ways:

Venmo will be better positioned to compete with rivals that have recently introduced their own in-store payment experiences. Over the past several months, Venmo rivals Square and Apple both added new P2P features that give consumers in-store payment capabilities. In partnership with Visa, Square Cash rolled out its own physical debit card, similar to Venmo's proposed offering, and in partnership with Green Dot, Apple Pay introduced a P2P payment feature that incorporates a virtual debit card that can be used in-store via Apple Pay.

This could be a new channel for Venmo to monetize its services. For the majority of users, Venmo is free, but PayPal must still pay banks a per-transaction fee. And as Venmo has scaled, this has increasingly eaten into PayPal’s take rate. However, with this physical debit card, PayPal could collect an interchange fee from merchants on a per transaction basis, essentially giving it an added channel to increase revenue — for context on the potential impact this could have, Amex made $4.69 billion in interchange fees in Q4 2016.

Peer-to-peer (P2P) payments, defined as informal payments made from one person to another, have long been a prominent feature of the payments industry. That’s because individuals transfer funds to each other on a regular basis, whether it's to make a recurring payment, reimburse a friend, or split a dinner bill.

Over the next few years, though overall P2P spend will remain constant, a shift to mobile payments across the board and increased spending power from the digital-savvy younger generation will cause the mobile P2P industry to skyrocket.

That poses a problem for firms providing these services, though. Historically, most of these players have taken on mobile P2P at a loss because it’s a low-friction way to onboard users and won’t catch on unless it’s free, or largely free, to consumers. But as it becomes more popular and starts to eat into these firms’ traditional streams of revenue, finding ways to monetize is increasingly important.

Jaime Toplin, research analyst for BI Intelligence, Business Insider's premium research service, has compiled a detailed report on mobile P2P payments that:

Forecasts the growth of the P2P market, and what portion of that will come from mobile channels, through 2021.

Explains the factors driving that growth and details why it will come from increased usage, not increased spend per user.

Evaluates why mobile P2P isn’t profitable for companies, and details several cases of attempts to monetize.

Assesses which of these strategies could be most successful, and what companies need to leverage to succeed in the space.

Provides context from other markets to explain shifting trends.

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