Last week, Facebook announced the Person-to-Person (P2P) payments feature enabling users to transfer money to their peers and friends through Facebook messenger. This can be seen as another attempt by the social media giant to attract millennials and Gen-Y users – a segment that frequently engages in making P2P payments (online or cash) for splitting restaurant bills, house rent, movie or concert tickets, and so on. In November 2014, Snapchat also announced a P2P mobile payment feature called Snapcash to send money to friends. Snapcash allows users to make mobile payments to friends by dragging images of notes on their smartphone. Many banks across the world are introducing P2P payments that use Twitter.
For now, Facebook’s P2P payments feature through messenger has only been introduced in the US market. With the kind of reach and usage levels the network has globally, the prospects for adopting P2P payments on Facebook messenger are definitely looking up. Users will be able to transfer money to their friends through the messenger chat window itself, while discussing their share of the payment or making plans, without needing to leave the messenger platform.
With the introduction of any online payment system comes the initial reluctance or uneasiness before it can be accepted and adopted, due to the security concerns. On its part, Facebook is assuring users of secure payment systems by encrypting the connection between users and Facebook, and card information is kept in a secure environment away from other parts of the social media network. The acceptance of this feature will be closely watched in the days to come.
Small individual payments are not a very big or lucrative market for the big banks and financial institutions. However, given the frequency with which millennials and the Gen-Y segment engage in P2P payments (almost on a daily basis), the P2P mobile payments market has become a new revenue source for social media networks and payment app developers like Venmo and Clear Xchange. Not to forget the online money transfer giant PayPal that has been offering this service for more than two decades now. According to Forrester, the P2P payments market in the US is expected to grow by 26% a year to reach $ 17 billion by 2019.
Venmo, an app that enables users to send and receive mobile payments, is a great example of how a routine and mundane financial activity such as transferring money to a friend can be made engaging and fun. The app provides a social media experience – allowing users to comment about their transaction and be creative with emojis and jokes when making a payment to their friends, which is then visible to friends in their network. The Venmo timeline is a fun way for the user to catch up on their network’s micro-economic activities. The success of the app in the US can be determined by the fact that Venmo is already being used as a verb – a synonym for transferring money.
The entry of social media networks and mobile application service providers in the P2P payment market can definitely prove to be a threat to banks. Currently, most of these social media networks and mobile apps charge fees per transaction to the user and/or merchants. It remains to be seen how these P2P service providers generate sufficient revenues while being charged by credit card companies and banks for each payment.