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

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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 (s EBAY) fits in both categories). Amazon (s AMZN), 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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8 Responses to “Venmo's Simple, Loaded Premise: Pay Your Friends From Your Phone”

  1. Al Jackson

    So I got invited to Venmo a week ago, and was very excited about it. I started accepting payments on it for my small company, and encouraged my clients and friends to join it. It seemed really cool, allowing customers to pay with their cellphones, or by credit card. But my company doesn’t have very much liquidity, what I get paid I use to pay my provider etc. So cash flow is very important.

    Being careful, before I accepted payments, I made sure that my bank account was properly linked. I then accepted payments and immediately tried to withdraw those funds to my bank account. Then, my clients received e-mails from Venmo telling them to prove their identity, and they froze my account. Myself and all my clients have to provide a ridiculous amount of information and worst of all we have to sign a legally binding document asserting that we didn’t violate the Terms of Service and other things. The problem with this is two-fold. One, my clients don’t know the law and won’t sign a legal document like this. And two, the TOS, are literally of book length, and until I seek legal counsel I can’t sign a document of that nature myself. In fact, if you read the TOS you would likely never use their service, it says that they can confiscate $2500 of your funds for little or no reason with no recourse.

    So I have about $15,000 in frozen funds. It says pending to my bank account, it has said this for a while, but my clients can’t pay me and it tells them that I’m frozen. I need these funds to pay my bills, because I already provided the product to my clients, who to no fault of their own, already paid. While the TOS are Orwellian, if they confiscated 2500, and let me keep the rest while things are pending, at least I’d be able to pay off my bills. But right now they are violating their own TOS.

    I’d advice EVERYONE, to stay away from venmo until these types of issues are resolved. At least be very careful with the funds you put in. I am racking up credit card interest and this is turning out to be very expensive.

    I will update you if things change, I’m not just a hater, I actually liked this service, until they stole all my money.

  2. Customers like me definitely would like to embrace new technology which makes me more productive. However there must be measures to be instituted by concerned authorities so that payment systems like Paypal should ensure “fair” practices. Just to cite an actual example. Paypal locked my account with funds in tow without any justifiable reason. And up to now it remains that way.

  3. Venmo has done a couple of things really right: made it super simple for me to send money to my friends (say if we are splitting the tab) and made it very easy to add people to my trusted network of friends.

    It’s a great service that wins through simplicity.