Social payments startup Venmo is opening its product to the public today, after over two years in a limited, invitation-only beta. Founders Andrew Kortina and Iqram Magon-Ismail think the time is right for Venmo to enter the mobile payments space – the company takes a unique approach that puts an emphasis on interactions between friends, rather than on the actual cash changing hands.
Venmo provides a way for friends and small groups of users to pay each other relatively small amounts (think settling a bar tab or splitting the dinner bill) via apps and SMS quickly and securely, from either bank accounts, credit cards or their Venmo balance. Payments between friends that come out of either a user’s bank account or their Venmo balance are free, and both Kortina and Magon-Ismail emphasize that isn’t changing, since it’s a core value of the company and their approach.
“To use Venmo with your friends, you’ll always have the ability to do it for free,” Magon-Ismail said in an interview. “That’s a mission we stand very strongly by and we’ll adhere to it as long as our company exists.” That’s not to say the company doesn’t have monetization strategies, however. Right now, if a user spends more than $500 via credit card through the service, Venmo charges a three percent fee on any transaction above that amount. Venmo does however make sure to alert customers when they’ll incur a fee, and gives them the option of not going through with the payment.
“Once we start to hit more of a critical mass, we have ideas of maybe including businesses in the Venmo network,” Magon-Ismail said about the company’s plans to eventually add more revenue-generating power once it has the network and user experience in place. “We’ll release a product for that if it’s something we decide to focus on down the line.”
In terms of features right now, however, Venmo differentiates itself from other solutions like PayPal in a few different ways. First, it allows users to pay each other not only via apps, but also by SMS. Venmo offers Android and iPhone app-based solutions, but anyone with a cell phone (in the U.S.; international expansion is a possibility down the road) can also use its SMS payment features, which as we noted in a previous article expands its pool of potential users considerably.
Venmo is also different because it’s aimed squarely at small amount transactions between friends; bank-funded payments are limited to $2,000 per week, while credit-card payments are limited to $2,000 a month, so it’s not designed for users paying for major purchases. Magon-Ismail and Kortina also pointed out that one of Venmo’s biggest strengths, and a feature that’s been embraced by its beta pool of users, is that transactions can optionally be shared socially with a users’ network.
“Once we started to get our friends on Venmo, we realized that one of the things that makes it very special is that we have these social, very meaningful types of transactions,” Magon-Ismail said. “Over the course of our existence we started to encourage our user base to share with their friends the types of transactions they’re making with each other.” As a result, he said, a payment “becomes another place to interact socially,” like buying drinks at a local bar and having your friends notice and drop by or talk to you about it later. It’s all opt-in, of course, which makes sure privacy is available for users who’d rather not share their payments.
The shared nature of Venmo’s payments had some surprising results. Kortina related a story about a user who collected payments for a fantasy basketball league through Venmo and PayPal, who said he received payments much, much faster from Venmo friends, possibly as a result of them seeing payments being made by others. There’s also the pile-on effect, which could, for example, encourage many more people to contribute to a wedding gift pool than if contributions were collected in private.
Venmo may have a unique approach to mobile payments in a very crowded market, but making headway against established players like PayPal will be difficult. Its focus on friends, and on social sharing of payment history, is definitely unorthodox, but only time will tell whether that becomes its biggest strength or a roadblock to mainstream adoption.