Last August, Silicon Alley darling Venmo, a mobile app that lets you split bills and pay friends, was acquired by Braintree, a PayPal competitor, for $26.2 million. At the time, Braintree emphasized the shift towards mobile commerce. And it looks like having a consumer-facing brand like Venmo is helping in that department.

Today, they announced the launch of Venmo Touch, which should help lower the barrier to buying things on mobile by avoiding the hassle of having to enter your credit card information with every new app . . . as long as it's part of the Braintree family.

Enter your credit card info on the TaskRabbit app (a Braintree client), for example, and an option pops up to "save card with Venmo." If you opt in to the service and then open the HotelTonight app (another Braintree client), it will ask if you want to use the same card on file. All you need to enter is the CVV code.

Of course, the mobile payments market is plagued by fragmentation. For example, how is the average consumer supposed to know that Best Buy and Walmart are on the same network, whereas Duane Reade is with Google Wallet and Starbucks is with Square?

Braintree has an advantage there because it happens to be a popular payment platform with the kind of apps you might actually make purchases on. Venmo Touch is debuting in private beta on HotelTonight, TaskRabbit, Wrapp, and more and Braintree expects that other clients like Uber, Fab, and Livingsocial will take advantage of it, as they have one-click check out.

Now that Venmo Touch has launched maybe cofounder Andrew Kortina can finally get some sleep?

Mr. Kortina (Photo: Twitter)

A source familiar the deal told Betabeat yesterday that Venmo, a New York City-based mobile app that lets you split bills with friends, is in the process of being acquired by Braintree, a Chicago-based online payments company and PayPal competitor. The New York Times broke the news this afternoon, reporting a $26.2 million acquisition price. On the company blog, Venmo said the deal closed in mid-June and that its payment-sharing service "will remain unaffected" and continue to operate as a wholly-owned subsidiary.

Venmo and Braintree share an investor, Palo Alto powerhouse Accel Partners, which also invested in Facebook.

The two startups do seem to be in the midst of a mutual appreciation society. Last week, Braintree's community manager Kristi Lynch tweeted, "I know it sounds weird, but the @Venmo app makes me wish I owed more people money." Two Venmo employees favorited the tweet.

Venmo was founded in Philadelphia in 2009 by two former college roommates, Andrew Kortina and Iqram Magdon-Ismai. The duo eventually moved the company to New York City, where Venmo become one of the early stars in the city's growing tech orbit, embraced by early adopters for making it easier to split the cost of dinner, drinks, monthly cable bills--or any of the innumerable costs of urban life--over their phones. There were even cutesy, customizable receipts, eagerly tweeted out by the Alley in-crowd.

However, Venmo took awhile to introduce itself to the public and didn't emerge from private beta until this March, when it made the service available on iOS, Android and online. By that time, other players like PayPal and Square were aggressively angling for dominance in mobile payments, although not in the bill-splitting niche. Venmo raised a comparatively modest $1.2 million over the last three years, but from a number of notable investors. According to Crunchbase, Betaworks, Lerer Ventures and RRE Ventures all participated in its 2010 seed round, along with Facebook mafiosos Dave Morin and Dustin Moskovitz. Last year, Venmo raised a Series A from existing investors Lerer and RRE, along with Greycroft Partners and Accel Partners.

The Times reports that Venmo's 23-person team will not relocate from New York City to Chicago, but will continue to operate out of the East Coast.

Braintree, which was founded in 2007, got a huge influx of cash last June when Accel Partners, which backs a number of mobile payments startups, plowed $34 million into the company. The Chicago startup powers online payments for businesses, providing a merchant account, payment gateway and credit card storage, all in compliance with Payment Card Industry (PCI) standards. Accel partner Ryan Sweeney, who joined the startup's board, described the payments company as providing a core foundation for Braintree clients, a list that includes high-profile, fast-growth businesses like Airbnb, LivingSocial, OpenTable, Shopify, GitHub, 37Signals and more.

In a TechCrunch post about Accel's investment, Mr. Sweeney predicted that the online payments industry would "consolidate dramatically" as payments became bundled into other services. In the past few months, however, the industry seems to be marked by increased fragmentation, with everyone from Verizon to Walmart to AT&T rushing to offer their own app, grasping for a chance to lead the payments evolution.

Braintree signaled its interest in mobile--Venmo's playground from the start--back in February, when it released tools for mobile app developers that would let merchants accept payments within a smartphone or tablet app. TechCrunch reported that the new tools help developers "avoid PCI compliance issues by encrypting sensitive credit card data when it is entered by the user on their mobile device." When merchants pass encrypted data from their server to Braintree for processing, Braintree uses a private key to decrypt the information, thus keeping credit card data out of merchants' hands.

A number of mobile payments companies, including Venmo, which uses a 256-bit encryption, have run into compliance issues with an obscure, broadly written law called the the California Money Transmission Act. As BusinessInsider reported, even PayPal had trouble with the law before it was acquired by eBay. As of last month, Venmo, Square and Amazon all had applications pending with California's Department of Financial Institutions. (It's worth noting that Robert Oswald, a Braintree ecommerce consultant, is one of the 16 people who follow the question, "How concerned are Venmo investors that it is not registered as a money transmitter in every US state?" on Quora.)

As Venmo co-founder Andrew Kortina told Betabeat in March, unlike other payments startups that try to get vendors to sign up in order to increase distribution, Venmo has taken a different approach, relying on friends to encourage friends (the few you'd normally split a bill with) to sign up. PayPal is great for strangers, he argued, but Venmo is optimized for people you know and trust. Initially the startup, which was merely SMS-based--leveraging a user's phone contacts--covered credit card fees for its users as it slogged through the arduous process of interfacing directly with banks.

When it emerged from private beta, however, Venmo required new customers to make payments from their bank accounts (or their Venmo balance) if they wanted to use the service for free, otherwise users had pay Venmo a 3 percent fee for using a credit card after the first $500. In March, Venmo told us it was processing $10 million in transactions a month and growing 30 percent month-over-month. Mr. Kortina predicted Venmo would do $250 million in transaction volume this year. Not long after  the app was released to the public, Venmo stopped losing money on credit card transactions. As we wrote back then, "By Silicon Alley standards, that’s killing it."

This is a breaking story, we will update the post when we know more. 

Previously:

What’s a Little App Between Friends? Venmo Only Cares About You and the People You Split Lunch With

Hello Venmo! Peer-to-Peer Payments Startup Picks Up Steam

Cutesy Venmo Receipts Are Now a Thing

Mr. Kortina. (Twitter)

Betabeat visited our local pay-with-your-phone startup Venmo yesterday in the company's overcrowded, underdecorated Chelsea office. It's two floors above a spa and reminds us of a high school computer lab with the accompanying young people, T-shirts and computers, although the Macbooks were a bit nicer than the monstrous HP desktops we remember from class. We followed cofounder Andrew Kortina down two flights of stairs to a space Venmo has annexed on the second floor, scooted past an intern in Venmo's bright blue shirt, and kicked a few employees out of a small conference room, where Mr. Kortina propped open the window with an umbrella. A DIY piece of art made out of nails and what appeared to be a piece of the ceiling spelled out "magic room."

Venmo will probably outgrow its little office soon, although Mr. Kortina likes its proximity to both Penn Station and Whole Foods. Venmo is processing $10 million in transactions per month and growing 30 percent month-over-month. At that rate, give or take a few variables--Mr. Kortina is a data nerd--the company will do $250 million in transaction volume this year.

Perhaps that's why Mr. Kortina seemed so laid back as Betabeat peppered him with questions about his competitors. But what about Dwolla? What about PayPal? What about Google Wallet? Mr. Kortina is tan and lean, eats kale salads and rides a bike, speaks evenly and takes unhurried pauses. He wishes Whole Foods would take Venmo, but in general, he is not worried about the competition.

People keep talking about how changing the way people pay for things is a "big opportunity," he said. Journalists, he said, are approaching him more and more "just to talk about the whole payments thing" because the space is so hot. Venmo doesn't want to mess with all that. "The reason we did it was because we thought cash and checkers were annoying so we want to solve a problem that we had," he said.

The real reason Mr. Kortina isn't worried about competition is because if you've ever used Venmo, you realize there is no real competition for Venmo. Here's why:

Unlike the payments startups that are targeting vendors right away, Venmo only wants you to convince a friend or two to join the service. Mr. Kortina has crunched the numbers, and 90 percent of payments of each Venmo user's payments are made to the same five to ten close friends. While PayPal is optimized for strangers on eBay, Venmo is optimized for people you already trust and even like. We'll just excerpt from an old pre-Betabeat piece, "Cutesy Venmo Receipts Are Now a Thing," a reference to those automated Venmo tweets we keep seeing about paying people for "friendship fee" and whatnot.

Friends and money, they don’t always mix. But they have to: Exchanging money with friends is impossible to avoid. Drinks, taxis, dinners and cable bills are just some of the things for which we become financially indebted to each other, sometimes for substantial amounts (thanks, expensive City).

...

Venmo fans around the city have repeatedly told The Observer how much they love and depend on the app, and it seems to be the social element that’s made Venmo sticky. You can’t say “fuck you, pay me” to a friend. With Venmo, you send a personal note with each charge and payment, which you can share on Twitter or Facebook. That note might say “fuck you, pay me,” but it’s okay, because now it’s on the internet and it’s social media and those things are fun.

“We actually will not let you make a payment without including a personal note,” Mr. Kortina said. “We hope that all of the complexity, emotion, and feeling involved in a social gesture start making monetary transactions more personal, more fun, and simply a better experience that feels more like getting a gift or a high five than exchanging money.”

Exchanging money with friends almost always indicates a share-able moment. You're splitting lunch (one of Venmo's top use cases), or you're out to eat with a group, or you're at a bachelor party and buying the groom drinks. With Venmo, users are sending each other money in amounts that signify dates: $11.04 for your November birthday or $19.79 for an anniversary. "There are other ways to send money for a utility bill, but they're just not as fun," Mr. Kortina said. Surprisingly, people seem to find Venmo attractive because it lets them capture the moment of settling up, rather than because it allows for more precise bill breakdowns. "The motivations for why people do this are weird," he said.

It's the sticky, social, "fun" element that keeps Venmo in a class of its own. Eventually, Venmo will target restaurants and other vendors. But for now, the company is happy just to have you going dutch on dinner or splitting the beer funds with your roommates.

And good news: Mr. Kortina was able to report that with the recent launch to the public and the switch to processing payments with bank accounts, Venmo is no longer losing money on credit card transactions. By Silicon Alley standards, that's killing it. We say it's time to murder out the computer lab.

Mr. Kortina. (Twitter)

Venmo, the peer-to-peer payments app startup that moved from Philadelphia to New York over the summer, just made two big back-to-back announcements.

The first is the resolution of a long-running challenge for Venmo. In the past, it was too complicated and time-consuming to get Venmo to interface properly with the banks, so the company gritted its teeth and offered to cover credit card fees for its users. Relying on credit cards was the only way the startup could offer fast and simple money transfers while the team worked slowly and painfully to introduce proper bank transfers, which was "just not an easy thing to do technically," cofounder Andrew Kortina told Betabeat. The strategy was serviceable, but unsustainable.

Now new customers must now make payments from their bank accounts in order to use Venmo for free. Existing customers have until May 1 to switch. Customers can still use a credit card to make payments but Venmo will charge a 3 percent fee.

The second big announcement came yesterday: Venmo, which has been invite-only for more than a year, is opening up to the public. "We want to make it really fun and easy for people to pay with their friends," Mr. Kortina said, although in the future the company may start serving merchants.

The Venmo team is up to 23 "young, passionate people," as Mr. Kortina said, in an office in Chelsea and is processing $10 million in transactions a month. (Investor Ben Lerer predicted the startup will handle $250 million next year.) "It's not really stuff that would be captured somewhere else," he said. "Like if someone's friend had a bachelor party and they couldn't go, they could Venmo $20 to get drinks on them because they couldn't be there. People are using this to share the experience they have when they go out with friends."

In the long run, Mr. Kortina said, Venmo's competitors are Visa and American Express. "We see ourselves as a way to pay for something... we think that by making our product social and fun we're going to build something that people will choose to use over Visa and Amex."

Venmo lets users tweet their payments; see Betabeat's (now broken) "Cutesy Venmo Receipts Are Now a Thing."

Just paid @BaconIsMyCoffee for magazines from Chinatown. wink wink wink wink wink wink wink venmo.com/s/7qjB

— crispylettuce (@crispylettuce) March 19, 2012

There are a few problems with this. Venmo, the mobile payment app from New York's and Bit.ly's Andrew Kortina, addresses two of them. First, it's more reliable than memory and not as bulky as a dry erase board. But more importantly, it's alleviating the awkwardness of those you-still-owe-me conversations during the period between the loan and reimbursement, and for recording transactions.

Venmo fans around the city have repeatedly told The Observer how much they love and depend on the app, and it seems to be the social element that's made Venmo sticky. You can't say "fuck you, pay me" to a friend. With Venmo, you send a personal note with each charge and payment, which you can share on Twitter or Facebook. That note might say "fuck you, pay me," but it's okay, because now it's on the internet and it's social media and those things are fun.

"We actually will not let you make a payment without including a personal note," Mr. Kortina said. "We hope that all of the complexity, emotion, and feeling involved in a social gesture start making monetary transactions more personal, more fun, and simply a better experience that feels more like getting a gift or a high five than exchanging money."

Patriot Nate Westheimer added "USA! USA! USA!" to the receipt when he paid Vin Vacanti back for tickets to a U.S.-Argentina soccer game. Podcaster Aaron Crocco tweeted, "Just used @venmo to pay my co-hosts for being awesome on my podcast. I wish EVERYONE used this service. Makes life SO much easier." "Just paid rharwood for January friendship fee," VC Ben Lerer invoiced.

Novelty is also a factor in Venmo's delightability; we hear Jack Dorsey's dongle is also pretty fun.