The ability to use your smartphone as a wallet is an extremely useful addition to mobility and even helps reduce the number of cards we have to carry and helps alleviate the number of credit cards and payment cards we need to carry (just don’t lose your phone.) We’ve seen a few different payment vendors approach allowing people to pay-from-mobile at point-of-sale with NFC but there’s still a lot of competition in the “give your friend $5 from your phone via using their social media.” Looking to be easier than Paypal, Philadelphia-based social payments processor Venmo seeks to become that bridge.

Venmo has added free and instant bank payments to their payment processor allowing people to eschew credit cards for their bank accounts. This works with a plethora of major banks such as Bank of America, Wells Fargo, PNC, CTI, Chase, ING, and many more.

Since 2010 when Venmo received their first round of $1.2M Seed funding, they have been working to allow people to pay others via their Venmo account using their phone and a social media contact. Initially they could only allow people to go through credit card processors and soaked the processing charges themselves.

Starting May 1st, customers of Venmo will continue to be able to process free payments via the network—except that they will have to switch to bank account transfers if they want to avoid fees. From then on credit card transactions will cost an extra 3% to cover processing costs; but with the availability of a still-free type will probably not cause the loss of any customers.

Until May 1st,

• You can continue using Venmo the way you do now.
• You can opt to switch to bank payments at any time by following a few simple steps.

Starting May 1st for you (and starting today for new users),

• To continue using Venmo for free, you must switch to bank payments.
• If you still want to use your credit card, you can set it as your funding source, but you will be charged 3% to cover credit card processing fees.

When you’re signing up your friends, you should know that they can send their first $500 from their credit card for free.

With this sort of addition to their services, Venmo is entering into territory in the US also being carved out by competitors such as Dwolla and PayPal. In late 2011, Dwolla also added instant payment from an escrow account and via bank accounts but for a fee of $3 per month (as compared to Venmo touted as completely free.) The market is also filled with companies such as Square, Verifone, and PayOne, to the extent that SXSW 2012 found itself dominated by mobile payment vendors pitching their wares.

Right now, because most credit card vendors do not provide an easy phone-to-phone or even social media enabled payment system for person-to-person, startups like Venmo will find themselves a niche. The lack of fees and ease-of-use may give them an advantage over both credit card vendors and other processors who do the same thing.