Could Facebook take down Western Union? - WSFA.com Montgomery Alabama news.

Could Facebook take down Western Union?

Facebook's peer-to-peer payment system will feature a dollar symbol in Messenger that links to a debit card. (Source: Facebook) Facebook's peer-to-peer payment system will feature a dollar symbol in Messenger that links to a debit card. (Source: Facebook)

(RNN) - When Facebook officially releases its money transfer system in Messenger, it could have a greater impact than most people initially realized.

Facebook is not the first company to offer people the ability to transfer money to friends on an internet app, but it offers something no one else has.

More than 1.4 billion people worldwide actively use Facebook, a figure other services that have recently entered the peer-to-peer payment market can't come close to rivaling.

Facebook's announcement in March that it was developing a money transfer system in Messenger was not just competition for virtual enterprises.

If Facebook's venture is a success, it could cut into the pockets of longtime businesses like Western Union and MoneyGram.

Robbie Kellman Baxter, a marketing consultant and founder of Peninsula Strategies, said those types of older establishments are missing an opportunity as the market is changing.

Much like the effect search engines had on libraries, she sees this as a way to further simplify a task most people take for granted.

"If you said to somebody today, 'What would be an effective way to send money to somebody?' they would never say, 'I go to the store with cash and wait in line, and they inform a store near where my loved one lives.' That's absurd," Baxter said. "If you asked a 12-year-old what would be the right way to handle that, they would say email it to them. All kinds of tech companies and outsiders are saying it shouldn't be that hard."

It hasn't been that hard for some time. Numerous businesses have popped up with some type of similar solution.

Snapchat, Venmo and Square are the most recent companies to establish peer-to-peer payment services, and PayPal preceded all of them.

"It is not an invention, not a breakthrough for the payment world," said Ozgur Gungor, general manager of Cardtek Mobile and EMV Solutions. "You can use your smart TV to do peer-to-peer payments. You can do it right now. We have a solution to provide that, but it doesn't have as many users like Facebook has. You need a critical mass of users if you want to make it a success."

The sheer longevity of Facebook's existence makes it one of the most trusted internet-based companies in the world. For that reason alone, it won't be hard to sell the service to users once it officially rolls out.

The major obstacles, according to Gungor, are security and meeting different global regulations for financial transactions.

Facebook had already cleared one hurdle - a platform to build its money transfer service.

"If you're a user of games or other applications on Facebook, that is also a key to do payments over a Facebook financial account," Gungor said. "The breakthrough for Facebook, other than Apple Pay or Samsung (Wallet), is it has a huge customer base, and it is a platform that serves many applications and can also serve as payment platform for those applications already in Facebook."

To address security, Facebook's payment systems will be kept in a secured location separate from other parts of its network. Gungor said that was critical because a breach would affect more than just personal payment data.

It may seem like the company is late to the game, but there were signals it has been exploring this option thoroughly. It hired former PayPal President David Marcus in 2014. Soon after, Facebook rolled out a new mobile messaging app.

"I would guess they were on this," Kellman said. "I would think someone over there has been on this for a long time. The person who runs Messenger used to run PayPal. I would guess they probably have been thinking about this for a while and wanted to do something like this."

The way to a new wallet?

Bloomberg reported Western Union was in negotiations to buy MoneyGram, something the former denied. MoneyGram went from a reported $39 million profit in the first quarter of 2014 to a $72 million loss during the same period this year.

Baxter and other experts believe Facebook and similar peer-to-peer payment apps can do more than give brick and mortar remittance companies a run for their money.

She didn't think it was a stretch to say the new competition could put them out of business.

"For several years Facebook was criticized for not having a revenue model," Baxter said. "But now they have this huge community. If I could use Messenger to send you $10 because you paid for lunch today, I'm probably going to use it."

Facebook may have given a direct indication of the type of user it is targeting by linking pay accounts to debit cards instead of credit cards.

Security experts widely discourage using debit cards for online transactions, but almost two-thirds of millennials (people ages 18 to 29) do not use credit.

A 2014 Pew survey showed millennials are the demographic with the highest percentage of social media use. Younger people are also moving away from banks. Though Facebook said it would not initially support prepaid debit cards not tied to a bank account, it left open the possibility in the future.

The shift in how people handle money is helping to expand what one 2010 article called the "self-service economy." The report, written for the Information Technology & Innovation Foundation, said loosening government regulations for online transactions and opening more pathways for tech companies could add billions to the economy annually.

"Self-service has long existed, but its importance has grown as advances in information technology (IT) have created many opportunities to leverage self-service technology for large gains in efficiency and convenience," the report said. "Self-service technology continues to become more efficient and more convenient and, as a result, increasingly organizations - including businesses, nonprofits and governments - are using self-service technology to operate more productively and to better serve their customers."

People already book travel plans, make purchases and pay bills without making contact with another person.

If Messenger's peer-to-peer payment service is a success, other social media platforms could follow suit. It is anyone's guess what lies beyond.

"If Facebook opens this peer-to-peer payment door to 1 billion people, then it can evolve, it can emerge to a different payment methodology where merchants can adapt," Gungor said. "That is a door we can be moving into, and we will see in future."

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