Social media is increasingly making its way into the payments arena, giving providers another way to capitalize on this rising trend. Social payments are especially popular among millennials and Generation Z consumers, who have not only helped to form the social media movement but some of whom have never known a world without mobile devices, where e-commerce and peer-to-peer (P2P) transactions are on the rise.
It’s no wonder why social media giants are increasingly integrating payments technology. The digital payments industry could grow into a $100 trillion market segment, according to Dan Schulman who is at the helm of online payment platform PayPal. Schulman explains that it is not a zero-sum game there is room for multiple payment providers to take a piece of the pie. The data supports this view, especially among younger consumers in their 20s, many of whom use up to five or six P2P services.
Social payments are mostly divided into two groups – peer-to-peer payments, which are direct cash payments from one account holder to another in real-time, and “on-site purchases,” the latter of which involves a third party platform, such as sending funds from one bank account to another or making an e-commerce transaction on Amazon.com. Limitations could arise for users who are looking to send cross-border payments in which currencies must be converted.
Payment providers are also upping their P2P game and most recently have given users the ability to send a payment to someone in an “already open conversation,” removing the need to launch the app or accessing online banking. A UK startup dubbed Fresh Direct recently delivered this feature to popular messaging apps for real-time daily payments of up to £350.
This is not to say that there are additional use cases that aren’t in the works. Social media platforms are increasingly experimenting with crowdfunding methods, such as giving users a way to generate support for select charities with the click of a button.
And while it’s still early innings for payments on social media platforms, the trend has begun catching on. In the U.S., 42 percent of young adults between the ages of 18-24 completed payments on social media platforms in 2017 compared to closer to half of millennials between the ages of 25-34.
Indeed, younger generations are driving the trend, as evidenced by a recent Accenture report stating that 33% of Generation Z consumers — who are today’s teenagers and young adults — are interested in making payments on social media platforms compared to a mere 3 percent of baby boomers. Nonetheless, younger consumers have the potential to influence other consumers with their preference for digital wallets over leather wallets, for instance.
The popularity of P2P payments among millennials, meanwhile, may have something to do with lifestyle. Millennials are more likely than other generations to attend events that are shared on social media and that are conducive to shared payments. This generation is also more likely to have roommates and therefore shared living expenses, and integrating P2P payments into social media platforms gives them the convenience they have grown accustomed to from technology.
Non-users of P2P payments mostly shy away from this technology due to security concerns. This is especially true for consumers who are 55 and older.
Cybersecurity and Privacy
In a recent MasterCard cybersecurity-related announcement, the city of London Police Commissioner revealed that small- and medium-sized businesses lost £6.7 million from cybersecurity attacks on their social media and email accounts in the six-month period leading up to September 2018. Providers are combatting security threats by integrating multiple layers of security across encryption technology, two-factor authentication, and biometrics.
Another issue is privacy. Social media platforms are notorious for collecting and sharing the personal information of their users, either in a transparent or sneaky way. As a result, it’s possible for this behavior to spill over into payments, leading to shared payment transactions with a network of friends or family whether or not the user intended for the transaction to be made public. This could be something that is easily fixed, however, by adjusting the user settings.
Tech companies have already muscled their way into the lives of consumers, and they are showing no signs of slowing down. Social payments are one example of this and another sign of the diminished role of traditional banking in the lives of consumers.