By adaptive - November 4th, 2015

Money is moving through messaging apps, letting consumers send each other money and pay for goods or services. Susan Kuchinskas examines whether money via message is a disruptor for banks or a simply a new channel.

Old-fashioned: You go out to dinner and split the check with your friend. She hauls out her wallet and peels off a few dirty, crumpled bills. Or, worse, she pulls out her checkbook, laboriously fills in the blanks, tears it off and hands it to you. You tuck it into your own wallet for your next trek to the ATM.

New-fangled: You open an app on your phone, tap in the amount, select her name from your contacts and hit "send." The payment lands in her account.

For many consumers, especially younger ones, instant messaging/texting is the primary way to communicate with others. And as messaging apps begin to develop into platforms, person-to-person payments make sense.

For consumers, it's about ease of use. For providers, it's better customer retention. For financial services companies, the picture is less clear.

Money by message

Mobile payments volume in general is set to nearly triple in volume, from $52 billion in 2014 to $142 billion in 2019, according to Forrester Research. While mobile wallets in general have received a mixed reception, tying them to messaging could be the ingredient for success: Messaging apps enjoy a high degree of retention month after month, according to Flurry, between 60 and 65 percent. Their daily usage is also close to five times higher than the average of all apps, Flurry says.

In Asia, messaging apps like WeChat and Libo are so full-featured, they're more like mobile operating systems, according to Nikhil Joseph, an analyst in the emerging technologies service of Mercator Advisory Group. Noting that in the US, Facebook owns the top four mobile apps, he says, "They need to figure out a way to let people buy things." Indeed Andrew Bosworth, Facebook's head of advertising, told the audience at the TechCrunch Conference that the company is working on allowing businesses to have direct relationships with consumers within Messenger. "But it may take some time before people get used to the idea of buying things on Facebook," Joseph adds.

Jason Mander, director of research and insight for Global Web Index, agrees that in the West, cultural awareness and acceptance of money messaging is lagging; however, their global consumer survey found that 58 percent of Snapchat users had used mobile banking in a recent month. "Finding ways to integrate more activities inside mess apps is very much right way to going because that's how consumer behavior is shifting," he says.

In terms of penetration, Facebook Messenger's reach puts it ahead globally. Of the 34 markets Global Web Index researchers, Facebook Messenger and WeChat are the top apps in all but four or five.

Banks could lose brand value

In the short term, payments processors are still handling the bulk of these transactions; so messaging money is just another channel for them, according to Joseph. Consumers still have to plug traditional banking services – credit cards and/or checking accounts – into the messaging systems.

But there is danger to banks and credit card companies in consumer perception. A much-quoted study by Goldman Sachs found that one third of millennials didn't think they'd need a traditional bank in five years – even though they actually are relying on banks to handle their person-to-person payments. Says Mander, "If you talk to consumers who are using [money messaging], the perception is that they are using the app for payments rather than the bank -- and that is an important shift".

Joseph says, "Facebook uses whatever debit or credit card consumers already have. But Facebook is in complete control of that mobile interface, so the bank is more of a commodity player. If your brand starts losing value because people don't see your brand anymore, you start competing on price -- and that's not a good way to be." But it's difficult to quantify how much that brand identity is worth to banks.


True payment apps, including PayPal-owned Venmo and Square Cash (which also powers Snapcash) have more potential to cut banks out of the deal, Joseph says, because they operate their own payment infrastructures. But messaging platforms could get in on that – just like they do in China, where apps have their own banking licenses. "If Facebook goes that route, it will be worrisome for banks," he says.

If consumers can send each other money as well as buying things within messaging platforms, maybe they won't actually need banks? Mander sees a day when many consumers won't need all of the features of a checking account.

Tech titans muscle in

Apple and Google won't give up payments without a fight. Recently Google upped the ante by redesigning Google Wallet for iOS to make it easier to send money to others via email address – even if the recipient doesn't have Google Wallet.

Mander thinks these more established companies pose a real challenge for Snapcash and Facebook Messenger because they enjoy higher levels of consumer trust – combined with less hacking. He thinks consumers may find it more natural to handle payments on their mobile devices rather than on Facebook, where there is a long history of privacy issues.

Apple doesn't have a strong messaging play; most iOS users rely on third-party messaging or chat platforms. Nevertheless, Mander thinks it's maneuvering. He says, "I suspect they are plotting a long-term strategy that would either remove banks or reduce reliance on them."

In a world where 600 million people use Facebook Messenger each month, while Apple fanatics line up outside stores in the freezing cold to buy new products and "venmo" is a verb, banks' battle for the minds and pocketbooks of young consumers may already be lost.
For all the latest mobile trends, check out The Open Mobile Summit 2015 on November, 9-10, San Francisco

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