Social media payments: Threat or opportunity for banks?

Entersekt Editor|12 September 2018
Social media payments: Threat or opportunity for banks?

Remember the early days of Facebook? Were you an early adopter or more cautious, joining only after everyone and their cat had a profile? Those of us in the latter group eventually signed up because many of our friends reported being avid users and trusted the service.

Networks like Facebook have taken full advantage of these high levels of engagement to expand on the services they offer, further cementing their place in people’s daily lives. One type of service that has exploded in popularity among early adopters is social media payments. Most of the big social networks have launched some form of social payment capability. Is this trend a win or loss for banks?

Top social media payment apps

The granddaddy of social media payment apps—at least in the USA—is Venmo, which was the first of many e-wallet apps to use social media to send payment notifications. Venmo allows users to synch their e-wallets with their Facebook accounts, and to follow and comment on other users’ accounts.

Social media behemoths like Facebook, Twitter, and Snapchat have built on this idea to develop their own apps. Facebook introduced its person-to-person (P2P) Messenger payments capability in the United States in 2015, and extended it to the United Kingdom last November (just in time for the holiday shopping season). Messenger allows users to send money to their friends using their debit cards.

Twitter’s offering is called Tweet Purchase, which allows businesses to sell their products directly from a tweet. Sellers tweet about their products and Twitter’s algorithms detect users who may be interested. If there is a match, a user can click on a “buy” button to purchase the product.

Snapchat, meanwhile, has Snapcash, which works like most other P2P payment apps: when a user types a dollar symbol and enters an amount, the “send” button turns to a green Snapcash button. And Apple has, of course, also jumped on the bandwagon with Apple Pay Cash, through which users can send and receive payments via the Messages app.

Bank-driven efforts

Social media companies know that the more consumers transact through their platforms, the more engaged they will be with their brand. The converse is also true – for banks. To avoid losing business to these non-bank payments providers, some banks have launched their own social payments solutions. Perhaps the most prominent of these is Zelle, which was created by Early Warning Systems, a consortium consisting of JP Morgan Chase, Bank of America, Capital One, Wells Fargo, PNC Bank, US Bank, and BB&T. Zelle can be used as a standalone app or through one of the 30 banks that offer it as part of their mobile banking app.

On the other side of the globe, Indian banks ICICI and Kotak Mahindra have launched social media payment services by leveraging existing social media platforms. ICICI uses Twitter to promote icicibankpay, which allows customers to Tweet money to anyone they want. Kotak Mahindra offers KotakPay, which enables transactions through Facebook.

Potential opportunities for banks

Security experts have expressed real concerns about Facebook Messenger and other social media payment apps, and their vulnerabilities to fraud. Users of social media payment apps typically use the same login and password for payments as they do for the social media platform. Moreover, users’ social information can now be found together with their financial information, which makes social engineering scams, account takeovers, and similar fraud much easier.

Concerns of this kind may represent an opportunity for banks. Regulators are sure to step in as more payments are made through social media, and the networks would then do well to approach banks for assistance with compliance – who, after all, has better experience navigating the complexities of global financial regulation? By serving as trusted custodians of consumers’ digital identities, banks could help secure social media payments.

They could, in turn, take advantage of social media algorithms to make targeted offers to customers. As Pradeep Oommen points out in an article for Firstpost.com, social media companies have vast databases of user-generated information, so it makes sense to bring online payments to the social media platform, where algorithms can streamline information flows and customize them for each user.

To partner in this way, banks and social networks would need to settle the thorny question of who “owns” users’ data and how the data can be used. Both parties have much to gain by doing so.

About the author

Entersekt Editor

Entersekt Editor

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Entersekt is an international software development company based just outside of Cape Town, South Africa.

We are leaders in authentication, app security, and payments enablement technology, offering a highly scalable solution set with a track record of success across multiple continents.