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VarageSale Is One of the First Craigslist Competitors to Add In-App Payments

The startup's willingness to lose money on these transactions underscores how competitive the burgeoning classifieds app space has become

Jason Del Rey has been a business journalist for 15 years and has covered Amazon, Walmart, and the e-commerce industry for the last decade. He was a senior correspondent at Vox.

There’s a battle brewing to become the Craigslist of the app world, and VarageSale thinks a new feature will help give it an edge.

The community-focused classifieds app is starting to give some customers a way to pay for purchases digitally instead of having to rely on face-to-face cash payments, as they do with Craigslist and many other competitors. The new payment option could appeal to shoppers who don’t tend to carry cash or who feel unsafe carrying cash to meet up with a stranger.

The feature is launching for members of a few VarageSale communities in Illinois, and will roll out quickly from there. Buyers can fund their VarageSale wallet with a debit or credit card or from the proceeds of stuff they sell through the app. Those who want to transact in cash still can.

While VarageSale CEO Carl Mercier thinks the new feature will improve the app, the company will actually lose money on each of these transactions. VarageSale isn’t charging buyers or sellers for this feature, so it is eating the transaction fee of 2 percent to 3 percent that its payments partner Stripe charges.

“This is just a way to make the platform more compelling,” he said in an interview.

The startup’s willingness to lose money on these transactions, considering it generates no revenue of its own, underscores how competitive the burgeoning classifieds app space has become. Industry leader Craigslist still runs a text-heavy service and does not have an app, leaving space for VarageSale and a host of rivals to build apps that prominently feature images of products. Three of the top 15 free shopping apps for the iPhone are from this new breed of classifieds apps: OfferUp, Letgo and Wallapop. VarageSale is No. 65.

The competition is expensive. VarageSale, based in Toronto, has raised more than $34 million, including a big round from Sequoia Capital earlier this year. Mercier says the app has millions of monthly users, and that half of them open the app every day. The service is unique in that members have to sign up with their Facebook logins — so people know who they are — and have to be approved by a moderator who oversees a VarageSale community in their geographic area. The company is betting that these safeguards make the service more attractive to people worried about the sketchiness of doing business with a stranger.

Seattle-based OfferUp says it has raised $93 million, and some early investors and employees have sold some shares on top of that. CEO Nick Huzar said the company believes that $2.9 billion in goods were sold through the app year to date, but that number is an estimate since transactions happen in person and not through the app. OfferUp’s terms of service mention the existence of a digital payment option in partnership with back-end payments provider Braintree, but it was not an option for me when I checked the app. An OfferUp spokeswoman previously told Re/code that the app did not support in-app payments, and neither she nor Huzar immediately responded when I followed up with the information found in the terms of service.

Other rival apps, including heavily-funded Letgo and eBay-owned Close5, do not appear to offer in-app payments.

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