On March 17th, Facebook announced that in America, it’s instant-messaging app will soon allow users to perform digital monetary transactions. Users will be able to link their debit cards to their Facebook account, tap on a dollar sign in the app, type in the amount, and press send. Very simple.
Facebook is not the first to enter the market of free person-to person (P2P) payments. The move follows Snapchat, Apple, Samsung, and Google, all of whom announced new payment systems over the past few months. Facebook’s service differs in that it does not make instant payments: the money only arrives after a few hours, or days, depending on how quickly the user’s bank acts.
This move is widely seen as proof that technology firms are beginning to creep into the banking industry.
But how efficient are these systems, and do the businesses involved make a profit? Venmo, Square, and Snapchat do not charge users a fee for sending funds, and cover all the behind-the scenes transaction fees themselves, meaning they lose money on every single transfer. Apple is allegedly the only exception to this rule, and managed to convince banks to share a cut of each Apple Pay transaction.
Do you all think that this a good move by Facebook? I’m someone who uses Venmo quite frequently, but I can’t imagine ever using Snapchat or Facebook to transfer money. Facebook’s payment product manager noted “We’re not building a payments business here. The goal is simply to make Messenger more useful, expressive and delightful”.
http://time.com/money/3750004/facebook-mobile-payments-lose-money/
http://www.economist.com/news/finance-and-economics/21646802-facebook-enters-booming-market-mobile-payments-unfriending-cash
8 Comments
The world of social media is constantly in flux; tastes shift. If Facebook doesn’t keep itself relevant it will fall out of favor. Facebook have a dominant position and it makes sense for them to add features to make themselves a one stop shop for all your social needs; seeing as everyone has a Facebook except the provincial and the old it is an ideal way for people and their money to come together and once people have cards linked up it will be easy to add other features that it would make sense for them to charge for. May they tread carefully.
Wasn’t PayPal the first to do this? — in the US. We aren’t necessarily the cutting edge for this. One of the biggest money makers for Alibaba is its payment service. (Oh, and unlike Amazon, Alibaba has made money from the start — they didn’t have any venture capital, so if they wanted to grow, or even tread water, they had to make money. Amazon has so much cash from its IPO that it can operate for years without needing to make money….)
In any case, will this matter in macroeconomic terms? Yes, payments may be cheaper for small transactions, but only for those who have bank accounts of some sort. Rockbridge County is a poor place, so I have to pay some of the contractors I use in cash because they don’t have a bank account. In any case, it’s not as though there are no current means of payment. Large firms send money quickly and at low cost, have done so for years. I can send money to the Philippines from my computer, and get confirmation from the bank on the other end, all in under a minute.
So the big gains to the economy (if there are any!) have already been had.
I agree with Oliver. Facebook does not want to become an old social media website like Myspace, and with that in mind they need to stay “relevant” to the times. I also use venmo, which for some reason in my mind, seems safer than linking my bank account to my Facebook account. With the recent hacking of different databases (sony comes to mind), it makes me worried that any and all of this information can be hacked.
I also use venom multiple times a week, but I agree that for whatever reason using Snapchat or Facebook to transfer money makes me significantly more nervous, regardless of the amount. I’m sure this will change in the future as more and more companies begin to use mobile payment options, but for now I don’t trust them to hook my bank account up.
*venmo
I agree with Professor Smitka in that there may not be additional macro implications as most, if not all, of Facebook transactions will likely be individual. Overall, the banking industry is pretty trustworthy. There are some people who still are weary of putting their money into the banking system and it seems that social media trying encroach on banking is making some people nervous. I wonder if these platforms will be able to build up financial trust and how that will shift the landscape of personal transactions away from banks.
This is a very interesting move by Facebook. I remember when they acquired instagram, many people were confused by the move and appalled at the price. This update seems to be in a similar vein — Facebook wants to adopt new technologies before other social media outlets (and keep their ‘dominant’ status more secure). I do wonder about the program’s security. People often hack into others accounts for relatively harmless pranks, but how is Facebook allowing users to defend themselves when these pranks turn into theft?
I routinely transfer money bank-to-bank from my account. Indeed, there are only a few things for which I use checks (contributions to church, irregular contributions to non-profits [United Way is deducted from my pay]), but only one regular bill (the Farm Coop). I can send money to the Philippines and receive acknowledgment in under a minute. What advantage could Facebook possibly offer?
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