Venmo's Simple, Loaded Premise: Pay Your Friends From Your Phone

Venmo is quite simple — it allows you to send payment to your trusted contacts by using SMS. “This is one of the first things I’ve done where my mom understands what I’m doing,” is how co-founder Andrew Kortina put it during an interview today. Kortina recently left his job at and took a bridge loan from Sam Lessin and other individuals to pursue Venmo full time.

Kortina is well aware that many people have tried peer-to-peer mobile payments, and that more powerful companies are trying to do so today (PayPal fits in both categories). Amazon, for example, bought a very similar Y Combinator startup called TextPayMe, and offers its functionality as an (albeit buried) Amazon-branded service today. “We have the audacity to redo it even though it’s been done many times. We think we can do it better,” said Kortina.

Where Venmo aims to win is by using social connections between friends. When you sign up you connect to Facebook and Twitter to broadcast payments (only the ones you choose) and look for other Venmo users among your email contacts. Then you send your Venmo contacts payments by texting Venmo something like “pay Sally $6 for the yummy burrito.” You can also declare a contact “trusted,” and allow them to directly pull from your Venmo account (which in turn pulls from your credit card or bank account) without your confirmation. Or you can Venmo someone $3 with the message “grab me a coffee” when you know they’re on their way over to your office.

Philadelphia-based Venmo, right now a three-person shop from Kortina and two of his former classmates from the University of Pennsylvania, pays a small fee on every credit card transaction and plans to make money by passing that on to merchants. Kortina said they intend the service to always be free for friends. One issue with this plan is Venmo designing itself for the casual spectrum of transactions. If you happen to be buying something at a store that has a point of sale system, you’ll just hand over your credit card.

Of course, the other big issue with Venmo is the privacy and security of tying payments directly to your phone number. Kortina said Venmo will allow a high level of user control over every transaction, therefore protecting users.

I’m sure it’s going to be more complicated than that, but I think Kortina may be right about mobile payments coming into their own. For instance, after the major earthquake in Haiti earlier this year, people donated more than $35 million through $5 and $10 text messages, according to the Mobile Giving Foundation (this was through a slightly different method of adding the payments onto users’ cell phone bills). And there’s also plenty of smart people working on the mobile payments problem — for example Twitter founder Jack Dorsey’s Square, which is targeting merchants with a point-of-sale hardware dongle.

Venmo today is available only by invitation from someone who’s already on the service, and Kortina said he expects it to be that way for a while. If you’d like to get in line for an invite, Kortina said to follow @Venmo on Twitter. (If you’re really nice to me, maybe I’ll let you send me some money. Just kidding.)

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