Social Payments: An Opportunity for Banks
Social networks and messaging apps are investing in integrated payments capabilities in order to expand the utility of their platforms. And while social/messaging payments are still emerging, there are good reasons to be optimistic about social/messaging platforms as payment facilitators: social and messenger apps are among the highest global mobile downloads and also the most frequently visited web sites. Social/messaging platforms also have the potential to accelerate merchant opportunities in e/m-commerce.
While it is easy for payments incumbents to focus on the threats posed by big tech’s entrance into financial services and payments, we see motivation and opportunities for social/messaging platforms and payments incumbents to work together. Social/messaging payments come in several different forms, most notably P2P messenger-service payments and social commerce buy buttons (see Figure 1). In each of these payment products, we see use cases for collaboration that create a win-win for both incumbent providers and social/messaging platforms.
Figure 1: Examples of Social Payment Services In Market
* In October, 2016, Facebook acquired an e-money license from the Central Bank of Ireland, signaling European payments ambitions.
Source: Public announcements, First Annapolis Consulting market observations.
Use Case #1: Scaling P2P Services
Banks are investing in P2P payments via mobile apps and real-time clearing networks (e.g., Chase QuickPay or Barclaycard Pingit). They often struggle to achieve scale, however, because of the challenge associated with enrolling customers on both sides of the P2P transaction. Social/messaging platforms could serve as strategic partners for payment providers, helping to identify payment recipients and enable a communication platform for payment recipients to register with the P2P service.
Combining the assets of a social/messaging platform (i.e., a broad community of digital identities) with the payment infrastructure and compliance framework of a traditional bank/payments provider creates an opportunity to deliver a much more powerful P2P solution, and there are already several examples of such collaborations in the market (see Figure 2).
Figure 2: Scaling P2P Payment Apps via Social/Messaging Platforms
Use Case #2: Supporting Social Commerce
Social media platforms are ideal for driving spontaneous commerce. Their focus, however, is not on reinventing payments; it’s on enabling a seamless consumer experience. Buy buttons allow consumers to transact spontaneously and pay via cards or other (often) vaulted payment credentials.
With buy buttons, the social platform typically acts as the merchant of record (see Figure 3). Facebook, Google, and others already serve as merchants of record, and will act as massive aggregators of acquired volumes. Large-scale merchant payment aggregation benefits only the lucky few acceptance service providers (e.g., Paymentech, Worldpay, and Adyen) that are best positioned to provide global services. For the rest of the payment acceptance marketplace, aggregation is a threat. That said, we do see an opportunity for local merchant providers to support the back-end settlement of the social commerce ecosystem and provide compliance oversight (AML, KYC, etc.) for sub-merchants.
Figure 3: Buy Button Payments Ecosystem
Consider the back-end of the Facebook buy button as an example: while Facebook is the merchant of record, it still requires a compliant infrastructure to settle payouts with a potentially global community comprising millions of sub-merchants. Working with incumbents that have established merchant settlement networks will likely be the fastest and easiest way to build out the necessary back-end infrastructure. The recently announced partnership between Facebook and PayPal is one such example; PayPal is a logical initial merchant partner given their global network of 15 million merchants. It has yet to be seen whether Facebook or other social platforms will also look for a broader network of local merchant settlement partners in order to quickly reach the entire network of global merchants, but we can see a case for doing so.
Social/messaging platforms are still emerging as payment enablers, but they have significant growth potential, and could prove a powerful opportunity for incumbent payments providers. In order to achieve that growth, they will need to support frictionless payments that leverage the existing payments infrastructure. P2P and social commerce payments are only two potential areas where collaboration between social/messaging platforms and payments providers creates opportunities to increase scale and adoption to the benefit of both parties. Given the broad (and still evolving) applicability of social/messaging platforms, we expect to see others emerge as well.
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