Peer-to-peer payments come to Snapchat but what are the implications for retail banks?

The trend towards increased peer-to-peer payments has reached a new milestone with news that social network Snapchat is partnering with Square, a payment processing provider, to allow users to send money to friends.

Snapchat, which was launched in 2011 and reportedly has more 100 million active users, is the first social network to tap into its existing customer-base as a launch-pad for its peer-to-peer payment service (known as Snapcash). Snapcash will initially only be available to Snapchat users over the age of 18 in the USA but could presumably be later rolled out internationally. The partnership is also considered to be a major achievement for Square, which may be able to appeal to younger users (who have hitherto shunned Square Cash, the company’s email-based payment feature) through social channels.

There are two interesting insights here for the financial services sector. Firstly, Snapchat’s announcement is likely to intensify pressure on rival social networks to develop similar functionality. In a previous blog, FreshMinds explored attempts by Twitter and Facebook to introduce micro-payments features; more recently, a series of leaked screenshots suggest that Facebook may be about to introduce a peer-to-peer payments service to its Messenger app. We may see some interesting innovations in this space as social networks strive not to be left behind in the wake of Snapcash’s introduction.

Secondly, the proliferation of alternative payment processes serves as a reminder to retail banks that digital disruption and changing customer behaviour cannot be ignored. As yet, we do not know what impact peer-to-peer payments will have on revenue streams in retail banking, but we do know that it is opening up choice. Given that the next generation of retail banking customers will grow up on social networks, and probably be more familiar with them than they are with retail banking brands, this could prove dangerous for financial services.