How Splitwise Works and Makes Money

Splitwise is a free app that allows consumers to split expenses with friends. If people need to share the cost of a particular bill, Splitwise ensures that anyone who pays the bill is reimbursed. The app eliminates the need to keep receipts, because a user can add the expense to the app as soon as the cost is incurred. This cloud-based app is available for iPhones, Android devices and computers. The company was founded in 2011.

For splitting bills with friends and family, Splitwise can track each expense and the amount that each person in the group owes. Rather than paying each bill individually, the app allows users to total all of the expenses that they owe and automatically transfer the total payment to others in the group. Users can make payments by cash, by check or by using an online payment service, such as PayPal or Venmo.

This feature eliminates the need to write a series of small checks. Splitwise users can send an email notification when a particular bill is due and the app allows users to send an IOU to someone else in the group. Rather than have an awkward conversation about money that is owed, friends can send a message through Splitwise.

Plates is a separate free app offered through Splitwise that simplifies the process of splitting up a restaurant bill. This app allows diners to enter each dish ordered and split the cost of shared items, such as appetizers. The Plates app calculates the tax and tip, and each person in the group receives an email notification of the amount owed. This service can also link with the Splitwise app.

Splitwise is integrated with both PayPal and Venmo, which is a payment app owned by PayPal Holdings (PYPL). Venmo allows a consumer to link the app with a bank account, a debit card or a credit card. The app can send and receive payments through PayPal, and the service charges a fee for certain debit card and credit card transactions. ​​Venmo is widely used by college students and by a growing number of families, but the app is only available to U.S. consumers. Several other apps, including nTrust, are available internationally. Many travelers link their bank accounts to nTrust as they travel abroad.

Deciding how to share expenses can be difficult, but Splitwise makes the decision process a bit easier. Roommates, friends and other groups of people can use the app's fairness research and get advice on sharing expenses. Splitwise collects crowdsourced data and provides fairness opinions about a variety of expenses, including travel expenses and furniture purchases.

Several trends make the Splitwise app more attractive to the marketplace. Splitwise is considered a shared finance app, an area that many banks and other financial institutions have not focused on. While these financial institutions tend to focus on financial management services for customers, many firms have ignored the benefits of a shared finance app. Splitwise is a tool that allows its users to move toward a cash-free financial system.

Splitwise is a free app for users, so the firm does not generate revenue from its user base. The privately owned firm raised $1.4 million in seed capital from investors on Dec. 16, 2014, and the funds were used for operating expenses and to attract venture capitalists. According to Crunchbase, the company has raised a total of $10.2 million over a series of five financing rounds, as of July 2018.

Splitwise does not currently generate revenue, but the firm is using capital to make the app easier to use and to grow the user base. The firm's goal is to generate transaction fees from PayPal, debit card and credit card activity, so that the app remains a free tool for consumers.