Is Your Community Bank Watching Social Payments? Five Questions to Guide Your Path Forward

By Tina Giorgio 

The average person spends nearly two and a half hours on social media per day, so it’s no wonder social payments have started to infiltrate the financial services industry.

Retailers and merchants want to reach their customers where they are, and with social media serving up targeted ads and simplified shopping, the logical next step is to offer in-app payment choices akin to what Meta (a.k.a. Facebook) is working to launch with Diem, a digital currency formerly known as Libra that was intended as a way for people to send money cross-border.

Regardless of the success of the Diem experiment, social payments are expected to grow in popularity, particularly as the platforms identify streamlined integrations. This creates two chief concerns for community banks as they consider their response:

1. As consumers become familiar with these payment providers the chance for disintermediated volume could grow. According to recent research from The Clearing House, one in three consumers have increased their fintech app usage since the COVID-19 pandemic began.

   Case in point, Venmo processed approximately $60 billion in Q3 2021, an increase of 36% year-over-year. Further looking to expand that volume, on November 8, the person-to-person payment provider announced a partnership with Amazon that enables Amazon customers to make purchases using their Venmo accounts, beginning in 2022. This multiplies the reach Venmo will have and increases risk in the process. What’s more, Venmo has now paved the way for a new type of relationship with retail entities that others may try to emulate.

2. As the adoption of these platforms rises, so too does the corresponding fraud. Mercator Advisory Group pointed out in its 2022 Outlook: Emerging Technologiesreport, “The person-to-person (P2P) solutions in market today created an explosion in fraud, especially fraud involving social engineering, enabled by the lack of controls over the identity of users.”

   This fraud has become a systemic problem, particularly as 70% of app users are unaware that fintech apps have their bank account, credit card and/or debit card information, despite having provided it as part of the sign-up process. This means that should fraud occur, consumers will be coming to their bank for a fix. This further complicates the bank’s role in this transactional process and increases the potential for both reputational risk and fraud losses.

Despite these challenges and others that exist around social payments, there are opportunities as well. As community banks assess their options, a good first step is to take a closer look at your existing payments offerings. For example, you may want to ask:

1. Have we studied existing customer data to determine how many transactions are moving via Venmo, PayPal or other payment apps? What does that mean for our bank?
2. Have we explored the impacts social payments fraud may have on our bank? How can we help educate our customers and/or introduce new safeguards?
3. Have we considered/identified/introduced a P2P solution from our mobile and online banking apps to support ease of payment for our customers? What does that mean for our plans around customer retention and acquisition?
4. Have we spoken with our core provider or other fintechs about possibilities for supporting competitive payment products?
5. Have we investigated strategies for ensuring our cards stay top of wallet in an increasingly digital space? (See ICBA Bancard’s white paper, Cultivating the Strategic Value of Credit Card Rewards Programs, for ideas.)

Answering these questions will help you prepare to address the expected rise in social payments. In addition, ICBA Bancard’s Payments Strategy Guide may offer some insights to support you in navigating next steps amidst this change.

As always, ICBA Bancard is your partner in progress, and stands ready to help as you plan for this new paradigm in support of your customers and their evolving payments needs.

Tina Giorgio is ICBA Bancard President and CEO.