Update: How Does Facebook P2P Actually Work?

A vast majority of Facebook’s 500 million monthly users are logged on to Facebook Messenger with about 80 million payment cards on file. Facebook’s recently launched P2P payments system is currently built entirely around the Messenger platform. Facebook’s P2P payments begins as a conversation within the Messenger app. Then, with the press of the new $ icon and the entry of an amount, one can send money that will arrive on the recipient’s listed debit card within seconds.

What is really interesting is that Facebook is offering a fee-free P2P payment service for several reasons. One of them is that every ad-tech company in the world, and all the large e-commerce companies in the world, want to bring A and B data sets together: "A" being the data they already have and "B" is the data they don't have, but need badly to form a complete profile of the buyer/visitor/shopper. Now A could be demographic data (age, sex, etc.) and B could be the purchase history/POS data/online buying history. When you put these data sets together, you could provide a brand with answers that nobody else can and that's why they would pay you top dollars. All the leading tech companies in this space are trying to achieve the holy grail of mashing different data sets to give better targeting to marketers.

Anyways, let's look at how Facebook P2P payments work…

The payments mechanism being used:

The first time a payment is made via Facebook P2P, the receiving party is prompted to add Visa or MasterCard debit card details, in case a linked debit card does not exist beforehand. Facebook P2P payments basically involves debit card linking.

The money is debited from the sender’s debit account and delivered to the recipient’s Facebook associated debit card. Facebook's use of the debit card network means that the transfer can take about 24 hours to become usable. Both sender and recipient will see a confirmation message detailing the transfer status and time.

Consumer Authentication:

Users will be prompted to set a passcode or use Apple TouchID on compatible iOS devices to confirm transfers, although one can opt out of this authentication in the settings panel. As an added security feature, Facebook may ask users some extra security questions before a transfer can be authorized.

Facebook is also employing a team of anti-fraud specialists to monitor suspicious purchase activity to keep the stakeholders’ accounts safe.

Facebook P2P payments geographic outreach:

Facebook’s P2P payments will be initially available only in the US. To become a P2P payments system in the US, a company must apply for and be granted a money transmitter license in every state. Facebook has been approved money transmitter licenses in every US state. Facebook also obtained remittance licenses in some European and Asian countries, so, many other countries on the cards?

The zero fee option makes Facebook’s P2P payments a really compelling service for users to be able to pay each other without any fees. Facebook will probably earn revenue (as speculated) through interchange, i.e. when payments would be made at merchant locations (physical &/or virtual). This is based on the assumption that it will use "P2P payments" for merchant payments as well.

Facebook is also using better recognized APIs that have the ability in the future to allow payments from credit cards. The system will also be able to easily scale to countries outside the US and localize from a both a technical and a regulatory standpoint.

"Water Cooler" conversations:

It is being speculated that Facebook would be using the clearXchange network for enabling payments through debit card linking. clearXchange is one of the first networks in the U.S. - created by Bank of America, Capital One, Chase, and Wells Fargo - that lets customers send and receive person-to-person (P2P) payments easily and securely using an email address or mobile number. If the user’s bank is a member of the clearXchange network, then the user can use your online or mobile banking service to send and receive funds directly from your bank account without sharing sensitive account information.

There is a school of thought in the payments industry that Facebook is doing this to marry demographic data and consumer behavior data with actual payments data. If the same P2P system is tomorrow extended to merchant payments, then Facebook will also have visibility into purchase patterns and insights. That could be the biggest weapon for marketing and for serving programmatic ads. And this line of thinking does make me wonder...might this one day become the first successful at-scale no-fee money remittance network, that's completely subsidized by a non-financial-services revenue stream?

Here is a video highlighting Facebook’s P2P payments service: