Facebook has Libra and Instagram sells products. Twitter has Square for cash transfers. PayPal has Venmo and a debit card.
Every social network wants to be a payment platform.
The increasing number of social media users is fueling a new wave of social payments.
Facebook¹ has 2.5 billion users and their user base continues to grow, as well as Twitter and LinkedIn’s numbers. In 2020, social media companies use their growing subscriber numbers to create payment systems.
Figures on Social Media Consumption
The deployment of social media payments has started to transform the consumer banking experience. Over 72% of people depend on social media — a large market for social payments².
Social media users increased from 970M in 2010 to 2.95B people in 2020.
How do Social Media Payments Work?
Social media payments involve making payments for errands including taxi, shopping, payment of rent and even pizza delivery. For example, college students who go out for drinks prefer using Venmo, which allows them to make payments super fast.
Based on a peer-peer model³, social media users prefer Venmo for its simple UI and instant account transfers.
Banks have partnered with Venmo, Zelle, and other payment infrastructure platforms to enable social transactions with friends and family.
Benefits of Social Media Applications
1. User Convenience
Social media payment apps are easier and faster to use than traditional banks. Facebook Messenger makes money transfer instantly, where users only need to add their credit cards.
Social apps are almost free⁴ with estimates showing processing charges less than 2.8%. On the other hand, Banks and mobile payments systems generally charge sending and withdrawal fees.
3. Money Mobility
Whenever you need cash, usually you withdraw cash at ATMs in real life. Mobile device transactions are on-the-go, and not limited to your corner ATM.
4. Banking Transformation
Banks have started integrating their online payment systems with social media accounts as this allows them to interact with customers and offer better services.
Today banks can adopt a customer-first approach in their operations by analyzing social media data about their customers.
5. Business Transformation
Businesses have benefited from social media⁵ as advanced demographics have offered better insights to increase purchase conversion rate. Facebook allows companies to advertise their products on the side panel of the main feed.
Users can conduct their social activities while exploring ads on the side panels, potentially generating more sales for businesses.
Small businesses can adjust their operations through social media adverting to reach a global audience.
Did you know — A customer in Australia or Brazil can purchase anything on Amazon and pay through their social media.
Downsides of Social Media Payment Apps
1. Payment Security
Despite the benefits of social media payments, scammers trick users with fake goods and fraudulent websites⁶.
Venmo has experienced security breaches and the company admits more security reviews are needed to protect consumers.
2. User Limitations
Social media payments require all users to have an account. Also, social media payments are frequently used in the United States, Asia, and Europe, but are less common in developing countries.
Social Media Payment Platforms
To better understand social media payments, here are some of the popular platforms:
This is a popular social media payment platform in Asia (China), where users conduct transactions via the WeChat app⁹. You need to have an account with WeChat and fill vital information such as name, card number of your bank and authentication password.
2. Facebook Messenger
The Facebook Messenger application is convenient for users having accounts where they transact directly. Available currently in the United States and Europe, the Facebook Messenger is the coolest payment platform that businesses are using in large numbers.
3. Square Cash
For Square Cash¹⁰, users can easily transfer funds among family and friends via mobile phones. Another interesting aspect about square cash is sending funds directly to the company you want to invest in. The square cash app is increasing in popularity with recent figures at 25M users.
4. Instagram Shopping
Instagram users sign up for a store account that allows customers to interact with the seller online. Verified shop owners can conduct payments with their customers. The customer experience via Instagram shopping is great considering that customers interact directly with the seller.
5. Pinterest Shopping
For Pinterest shopping, users require accounts with Pinterest and use pins to mark products and purchase them. It is that simple. As a Pinterest user, you need to search for products of your choice and navigate around the pin to contact the seller.
Users of Venmo benefit from this payment method because of synchronizing⁷ with social media accounts including Facebook. Notifications are critical under the Venmo to inform the user about transactions. Users make quick payments such as dinner reservations, drinks at the bar and pizza purchases among others.
The Alipay social payment method, powered by AntWorks, allows users in Asia to send money with QR codes.
Challenger Banks are Social
Banks are challenging the wave of social media platforms. As the wave of social payments spreads, challenger banks⁸ are innovating in this space and competing with traditional banks.
Let us review some case examples of companies in this space:
The rise of challenger banks is a new wave cutting across the financial industry with Chime¹² leading the pack. The services are quick and efficient compared to ordinary banking services and are changing the online user experience. Users need a smartphone to download the application and allows them to conduct transactions. Chime users love the company because of no charges for maintenance.
By using the N26 app¹³, you enjoy the benefits of online banking and good news; there is no minimum balance requirement. Most banks have hidden charges but with N26 all banking is free.
Cogni.is has a large digital presence where customers get the experience of lifestyle and business in a single platform. Customers get financial advice on spending and managing their income and expenses. The digital bank collaborates with brands to bring their products to customers with a financial touch.
Are you interested in scanning your receipts and balancing expenses? Expensify¹⁵ is your best option as this digital bank comes with a great customer experience package. Businesses and individual customers find Expensify, a convenient option because of the flexibility that makes financial management a great experience.
Located in San Francisco, Brex¹⁶ operates in the financial services sector and manages customer cash accounts and credit card services. Companies in the technology industry find Brex a great choice for their financial transactions. Their wide range of business products such as corporate cards adds value to customers and this increases their financial options.
Business online transactions pose challenges to most operations and Stripe¹⁷ addresses this problem by enabling online payments. Businesses can send and receive money from customers and other businesses.
Future Social Media Payments
Social payment companies have had success in disrupting the financial sector but concerns about risks remain.
How does this relate to the Future of Work?
The future of social media payments requires customer experience.
Social media applications need to refine their systems with the customer in mind to make their services efficient.
Cases of fraud and scammers increasing online present risks for digital banking.
Digital finance innovation continues to accelerate as users request more features and better customer support.
¹Facebook Monthly Users, Social Media Payment Apps², ³Peer-Peer Model, Social Media Payments⁴, ⁵Business Transformation by Social Media,⁶Dark Side of Social Media Payments, ⁷Synchronizing, ⁸Challenger Banks