A once slow-moving market is changing at an ever-increasing speed. Snapchat, the popular photo sharing app, has announced a partnership with Square to offer instant P2P mobile payments.
The move comes only a few weeks after Apple rolled out its mobile payment service on iPhones. What does the rapid shift mean for banks and the payments industry?
With Snapcash, users transfer money sending a text message beginning with a “$” sign and the corresponding amount. All they have to do is to register their debit card details in their Snapcash account. That’s it. Square, a US-startup that already offers a similar service, provides the infrastructure.
Twitter launched a similar service to Snapcash in France a few weeks ago. Together with Apple Pay, they are all trying to dominate the mobile payments market, which is becoming crowded but still leaves room for great growth.
Snapchat alone brings some 100 million active users. The app is especially popular with young people. Users can send messages that self-destroy themselves within seconds. In addition, the payment service is extremely easy to use and has a potentially disruptive impact on the payment industry.
Clearly, a field that was once exclusive to financial services providers is shifting to technology firms. In the past 15 years, PayPal has moved from being a small tech startup to exerting a firm grip on consumer money transfer. At the same time, banks and other parts of the financial industry are moving away from being providers to playing the role of enablers.
How can banks profit from the mobile payments shift and what should they try to avoid?
The extent to which they can actually compete with the likes of Apple, Twitter and Snapchat is yet to be seen. These newcomers all have a large – albeit younger user base where trust plays an enormous part in the relationship.
Sure, banks can say the same about themselves but they have to comply with stronger regulatory measures. Moreover, they so far lack a network that supports instantaneous money transfer.
Banks can bounce back
Ease of use is also critical with the likes of Snapcash. Users do not have to think about bank account numbers anymore. All they have to do is to register their debit card details. And this is where banks can bounce back.
Just as Square is partnering with Snapchat to leverage the latter’s user interface, network and young, lucrative democratic, banks must become more open to partnerships with next generation social networks that come pre-loaded with a large audience, innovative user experiences and scalable technology platforms.
This positions banks well to succeed in “the long game”, of m-commerce. They can potentially move upmarket, especially with retailers that service younger consumers. Returning to Square, its model to date has been nearly 100% focused on merchants – SquareCash enables it to drive a model for user adoption by retail customers.
A dynamic and competitive market
So how should banks position themselves in the new payments ecosystem? First of all, it makes sense to support multiple m-commerce platforms rather than enter an exclusive partnership. By offering services to multiple payment providers, banks can help keep the burgeoning payments market dynamic and competitive.
It helps, of course, that they also spread their risk in this disruptive and unpredictable marketplace. But as long as there is a variety of ways to transfer money, they will still profit from participation. And as long as bank cards can be registered with several apps while retaining low or zero account fees, customers will be willing to stay with the bank or even sign up for new services.