Social Payments

In 2014, RBC became the very first bank in North America to offer a P2P payment service via Facebook Messenger. In the two years since then social payments have been on a steady rise, and while they have not been as widely adopted as some had predicted back in 2014, they are beginning to come into their own as a payments service – with variations on the service being rolled out in countries across the globe.

One of the most competitive areas for disruption in Fintech

Payments is one of the most competitive areas for disruption in Fintech, primarily due to the low barriers to entry – as has been demonstrated by the likes of PayPal and Square entering the marketplace with relative ease in comparison to other aspects of the financial industry. According to a recent report from Javelin, 26% of consumers have purchased something via social media in the last year, and given that Gen Y users are the most likely to have done so (44%) there is significant potential for growth in this area.

Javelin’s senior payments analyst Nick Holland believes that it is just common sense for everyone in the financial and payments sectors to look into social payments. P2P payments via social media are a natural evolution of the platform, especially given that some 80% of US consumers have accessed Facebook in the past year. Facebook in particular is ripe for the taking in terms of social payments, as you already have your entire network of friends and family connected on the site, as well as a truly massive base of global users. In a 2015 interview with Wired, David Marcus, the head of Facebook Messenger and a former PayPal president, stated that eventually Facebook wants to enable transaction-free payments for businesses, then make money when businesses pay to be featured or promoted. Social payments could quickly disrupt PayPal at the top of the payments market.

However, Facebook are far from the only social media platform who are branching into the social payments market. Twitter attempted to move towards becoming an e-commerce platform with their Buy button, which allowed users to purchase advertised products of services directly from their feed. The button has since been discontinued, development was halted last year, and now it’s eradication from the site has been confirmed as Twitter look to grow their revenue streams through other avenues, such as website conversions.

Pinterest have been offering a similar service, supporting “buyable pins” for around 18 months, Instagram have recently launched “shoppable tags” for brands who partnered with them for the launch of the service, YouTube has a “shoppable video” option, and even SnapChat has ventured into the market with their SnapCash service that allows payments between friends through the app. With nearly every major social media platform moving towards some form of e-commerce or social payments, it may seem crazy for Twitter to be abandoning the market. However, there is method to their madness – the text based feed that twitter uses doesn’t tend to foster business in the same way as Instagram or Pinterest, who are more visual.

It isn’t just social networks who have been keen to jump in on the social payments market. Numerous Fintech start-ups from round the world have been vying to become the go-to app for social payments, and perhaps most successful of them so far has been Circle. The social payments app has seen success across Europe and is currently expanding into China having collected a $60 million funding round mid-way through last year. They were reporting user growth of 832% in the US last year, and were projected to hit $1billion dollars of commerce in 2016.

Finally a number of banks have been attempting to break into the social payments market to compete with these start-ups and social media platforms. For example, HSBC have unveiled a social payments app that will trial early this year in Hong Kong, whilst in Singapore, the 20 main banks have collaborated to form Fast, the instantaneous money transfer service that is also set for trials this year.

Social payments are a natural evolution of finance. As the world has become used to free instantaneous global communication, the world of finance has lumbered behind. Social payments will inevitably become a huge part of our economy. What remains to be seen is whether banks, social networks, or disruptive start-ups, will become the go-to platform of the future for instant money transfers.

By Josh Hamilton