Facebook or Twitter Payments are a means to an end

Friday 24 October 2014 | 16:43 CET | Background

Facebook is believed to be working on a peer-to-peer payment service. Several retail banks are offering payment services that use Facebook, Twitter or a mobile phone number as unique identifier and a way to make money change hands. Social Media can be used as an infrastructure for payments, but these services are usually part of a different revenue model.

Facebook has built a payment functionality into the Facebook Messenger app, TechCrunch reported in October. Using Cycript analytic tools, a student at Stanford has found dormant code in the iPhone app. That code allows a user to associate a debit card with the app and use that for peer-to-peer payments to Facebook contacts.

The company is yet to outline its m-payment strategy. In June Facebook poached a high ranking director from PayPal. The Financial Times reports that Facebook is pursuing an e-money license in Ireland.

Dutch consumer bank Knab (the word bank in reverse) has implemented consumer-to-consumer (C2C) payments using Facebook or SMS. From the Knab smartphone app, account holders can select a phone or Facebook contact and send money to that person. The recipient is directed to a secure web page, where a one-time payment can be finalized by entering a current account number in a web form. Facebook does not ‘see’ the money, nor does the service leave messages in the time line.

Knab says the service is meant as a convenient way to set up payments, for example for splitting the restaurant bill, arguing that it’s much easier to send a Facebook message than to look up an IBAN banking account number. Facebook is only used for  

Gift Card over Facebook

PicomoPay is another example of a payment service that is not a part of Facebook, but relies on it as an infrastructure. Its primary business is to allow consumers to conduct person-to-person payments funded by their PicomoPay Digital Wallet. The US based start-up offers virtual gift cards that can be transferred to and redeemed by a friend. MoneyGram will allow its consumers in the US to send money transfers via PicomoPay's Facebook application to more than 336,000 MoneyGram agent locations in over 200 countries. The usual transaction fees then apply.

Four money streams

Those transaction fees matter, due to the unique characteristics of C2C payments. The total number of payment transactions can be split into four categories: Business-to-business (B2B), business-to-consumer (B2C), consumer-to-business (C2B) and consumer-to-consumer (C2C).

B2B is the largest category by far, both in volume and in value – any product of service is usually the end result of a complex production and supply chain. C2C is the smallest of these categories. Those payments are usually informal, without anything written in paper.

Usually, cash is available as an alternative. From a consumer angle, handling cash is either free or very cheap, which means that it’s hard for a C2C payment provider to monetize those services.

Knab offers over-Facebook payments as an extra service channel to its clients. In the United Kingdom, a growing number of banks has teamed up with Paym (pronounced as Pay ‘Em) a p2p service using the mobile phone number as unique identifyer. Other providers, including Orange and some banks in Turkey, use Twitter. In any case, these are still part of a banking-service.

A different revenue model can be found in e-commerce and advertising. It is not known what Facebook has in the works, but it could be working on a service competing with PayPal. Facebook could expand its position on the mobile advertising market. PayPal offers direct person-to-person payment, but m-commerce is the core product. 

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