The Paypal app was late, and didn't really support the seamless Venmo experience, because initially Venmo allowed you to sign up with a CC and ate the fees. Later, with enough momentum and usage, they moved people to direct deposit by adding the CC fee and giving some other incentives.

The company was acquired, along with BrainTree, by Paypal to bolster their mobile and API-driven payments in the present age.

Paypal was late, inconvenient, and (probably most damning) the brand became closely associated with scary things in the minds of many - freezing accounts, not giving funds to their perceived "rightful" owners, general legal troubles that cast doubt on whether you'd get your money.

It didn't really matter that those mostly happened to people moving 5-6 figures, most of the millenials I know actively avoid paypal as a result.

Venmo is more social than PayPal, and the brand is cooler. Given PayPal own Venmo I think they realize the value of this.

Venmo got its initial traction through college students. I doubt most college students had a paypal account to begin with.