Social Networks Are The Latest Threat To Banks

Forget Apple Pay and Android Pay, what about Facebook Pay? That could be coming soon with code found in Facebook Messenger that includes phrases such as “pay directly in Messenger” and “pay for items in Messenger”. It makes sense, with Facebook spinning Messenger out because it wants more capabilities in the app. Facebook already lets retailers use Messenger for customer service and adding the option to pay within the app is a natural extension of that. Another give away was its hiring of then PayPal president David Marcus to work on Facebook Messenger. Facebook’s not alone in moving into fintech with Snapchat’s Snapcash letting users send money to each other. While Tencent messenger app WeChat is one of the leading payment providers in China.

If Facebook does jump into payments it would be at complete odds with what CEO Mark Zuckerberg comments on the matter, saying that, “we’ll partner with everyone who does payments” adding Facebook is not in the “payments business”. Still it wouldn’t be the first company’s reversal, nor is likely to be the last. Payments only scratches the surface of what services social networks and messaging apps can offer, but for a network of 1.6bn users to hold that many people’s credit card details could super charge what the Messenger app is capable of.

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Social Media’s Potential In Fintech 

For peer-to-peer payments a social network could partner with a service like Square, as Snapchat did to allow easy transfers. Such partnerships are mutually beneficial as they make the social app more useful, while increasing the business for services. It also should prove attractive to consumers as building this into their social network means that’s one less service they need to download and create an account for. Peer-to-peer transfers is the first step, but social networks could also partner with services such as remittance providers and online lenders to offer a complete package.

Alternatively, social networks could use the data they have on their users to get into businesses like lending themselves. Many online lenders, such as Affirm, use data from social networks to assess credit worthiness. A social network would be in an even better place to use that data. The model here is businesses like Square and iZettle, which started out in payments and then used that data to move into loans.

Facebook already holds a patent on this, which allows it to assess users for their creditworthiness based on the ratings of their friends on the social network. It’s unclear if Facebook would ever use the patent, saying it is actually from a bunch of patents it bought from defunct network Friendster showing it’s no new idea, but it does show that if it ever chose it would have all the data it needs to assess people.

For the really big social networks peer-to-peer payments could also be their way into the remittances market. It would be a radical step, but given their popularity both the sender and recipient are likely to have an account. This also provides an excellent way to promote themselves in developing markets, which will be the main source of user growth as more developed markets reach saturation. A cheap peer-to-peer money transfer service built into a social network could completely undercut the two dominant companies Western Union and Moneygram, all without having to sign up any new users.

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Getting More Social

The biggest advantages social networks have is basically everyone’s got an account with them. Most people only use a handful of apps and social networks and messaging apps dominate this. Facebook is particularly dominant, with those that do use it spending around half their time in the app. Banking apps can help to fight back by making their apps more appealing. Payment app Venmo, for instance, offers a running feed of all their Facebook friends’ transactions.

Then there are the challenger banks and online lenders all of which provide a far better user experience. As superficial as this is, it’s still a big advantage and while banks can argue they are more trusted these new services are quickly gaining traction. Putting a lot more effort into user experience should be the first step banks take and then they need to look at integrating more social features into their business.

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