Venmo Wants You to Pay Your Pal, Over the Phone. What Will the Carriers Think?
That’s the premise behind Venmo, a stealthy but buzzy start-up that just closed its first funding round. The four-man team gathered up something in the $300,000 to $400,000 range, I’m told. Investors include Betaworks, Lerer Media Ventures, and, oddly, given that it’s a modest angel funding round, RRE Ventures.
The big difference between Venmo and its much bigger mobile payment competitors–both Boku and Zong, for instance, have millions of venture capital dollars behind them–is that Venmo doesn’t involve the mobile carriers, which can take 30 percent or more of each transaction they process.
That might be okay for virtual goods, like sheep for your Farmville game, since you’re just throwing money away in the first place. But if you want to send a friend $5, you don’t want her to end up with $3.50. And you don’t want to give AT&T (T) or Verizon (VZ) another $2.14 to place the full $5 into your pal’s account.
So Venmo simply sets up an account for each user, funded by a checking account or credit card, and moves the money into other Venmo accounts. Simple and clever, if it works.
A few obvious stumbling points:
- Red ink: Venmo doesn’t charge individual users for transactions, so it’s going to lose money on each transfer since it has to eat credit card fees, etc. The plan is to make that up by charging commercial users–your local coffee shop or flea market vendor or whatever business sets up an account–a 3.5 percent fee for each transaction.
- Fine print: The Venmo team–headed by Betaworks veteran Andrew Kortina and Iqram Magdon-Ismail, his former Penn roommate–doesn’t anticipate problems. But smart folks I talk to think that at a minimum, the start-up will have to turn itself into a credit card company or a bank to satisfy regulators. Certainly doable, but that’s the kind of stuff that requires time and money and comes with big penalties if you get it wrong.
- Trust: The big one–this thing doesn’t work, period, unless people are comfortable moving money back and forth via a four-man company they’ve never heard of. But the only way to combat that is to let people try. Venmo is in private beta now, but allows friends to invite friends and plans on opening up to a wider audience in the next month. Another option for New Yorkers: Drop by tonight’s New York Tech Meetup, where the team will be handing out invites.