Facebook enters crowded P2P space

When Facebook hired the former PayPal chief David Marcus in the summer of 2014 to oversee its messenger app, the message it sent to industry watchers was clear. Facebook intended to use his knowledge and expertise to push into payments. The new feature, which was unveiled during a second-quarter earnings call in March 2015, will allow US users to send payments for free to friends and family members using its popular messaging app.

There is no shortage of competitors in this fast-expanding person-to-person (P2P) payments space. Many traditional payment players like financial institutions offer such services often as an extension of their mobile banking app. There are even non-traditional payment players such as Google, which enable consumers to send person-to-person payments via email, and Square, which also powers Snapchat’s Snapcash. Of course, the pioneer in this still-emerging space is Marcus’ former company PayPal, which has its namesake product and its Venmo subsidiary, which has become immensely popular among the younger generation.

Even in terms of social networks, Facebook is not alone in its payments aspirations. Increasingly, social media networks, including the likes of Twitter, WeChat and Line, have entered the payments arena. This convergence of social networks with payments has gained the most traction thus far in Asia Pacific, but these plans are quickly being duplicated all around the world.

Somewhat paradoxically, more and more money continues to flow into this space, even though it is not a lucrative business. What frequently happens is that these providers incur costs for sending money across the traditional card networks and, in turn, pass those costs onto consumers. Of course, consumers are resistant to fees that could be tied to the transaction. For example, Venmo charges the sender a 3% payments fee for credit cards and non-major debit cards.

That being said, Facebook also is not entering payments to make money. The social network views payments as a utility and this feature, in particular, as one that could make its Messenger standalone app stickier, especially among the younger generation. Facebook competes against the popular messaging app Snapchat, which added P2P apps in 2014 via Square’s Square Cash app, and the Chinese messaging app WeChat, which has been viewed as a forward-thinker in this space.

Social networks, such as Facebook, have a distinct value proposition that could position it to outlast others. These players have the unique ability as a social network to insert payments into the normal course of the conversation. Consumers talk about payments within the apps so these social networks are betting on consumers ending the conversation on their network as long as there is embedded payment functionality rather than switching to another mobile app, such as PayPal and Venmo. In addition, messaging has begun to eclipse email as the preferred form of electronic communication, especially among the younger base, so that could place messaging apps, such as the one from Facebook, in an advantageous position over a service, such as what Google offers via its email service.

Facebook, which holds the crown as the largest social media network with 1.35 billion users, sits in a unique position even versus its competing social networks. It is no secret that Facebook CEO Mark Zuckerberg has high aspirations for his social network to connect the world socially and has teamed up with other social networks to bring affordable internet to where it is otherwise unobtainable. If Facebook is able to do that and also insert payments into the conversation, this recent news may one day drive major shifts in the person-to-person space, including the remittances market. Theoretically, Facebook may be able to one day offer P2P payments to every corner of the world.

About Michelle Evans
In her role as a senior analyst for Euromonitor International, Michelle Evans follows the global financial card market, including the drivers and constraints facing this space and overarching trends, like emerging payments that will shape the industry moving forward. She produces opinion pieces, in-depth reports, podcasts, video casts and general analysis to help clients make informed, long-term strategic business decisions. Michelle is a recognized payments expert and has been invited to share her expertise at several industry events. Michelle also has extensive experience with the media, being sought-after as an industry thought leader in many national and global publications.

About Euromonitor International
Euromonitor International is the world’s leading independent provider of strategic market research. We create data and analysis on thousands of products and services across the globe. With 12 offices worldwide, analyst;s in over 80 countries and market research on every key trend and driver, we give you powerful access to the real story behind consumer change. Emerging countries or developed economies: we identify the next opportunity first.