Will Peer-to-Peer Be The Next Frontier in Mobile Payments?

Disclaimer: This is simply my own opinion and does not represent the view of my employer.

Mobile payments have been a hot topic for the past few years. First there was the hype around NFC, which turned out to be a fad so far. Around 2011 number of players, Google Wallet and Isis, a JV of US carries (not the terrorist group, because of whom they had to rename) announced their mobile wallets that would leverage the NFC technology. Yet the merchant infrastructure, as in NFC-capable card payment terminals, was not ready. Nor were the NFC capable handsets widely available. Completely new way of paying for consumers. Maybe too early for user adoption. Multi-sided platforms are of value to one segment only if other group of customers are also present, ie. If the merchants don’t have terminals to accept NFC payments, the mobile wallets are useless for consumers and vice versa.

Then along came Jack Dorsey and Square. While you can do everything else for your business with your smartphone, why not also take card payments and manage your sales? Makes total sense. Leveraging the existing technology and use of credit cards in a novel way. After all the legacy card terminals are merely super expensive calculators, often costing more than your iPhone. As Marc Andreessen famously wrote that software is eating the world by replacing hardware with software. That also makes sense. Remember that there used to be keyboards in mobile phones?

Soon number of other companies follow Square’s suit developing mobile card payment readers, both in North America and in Europe. This became the hot topic, and investment money poured in. Latest $100m investment in Square valued the company at around $6 billion. This was after reportedly Apple was in talks to acquire Square for $3 billion.

Now heat is on regarding the mobile payments. Apple Pay came in, there are numerous credit cards with near field payment capability. And most of all, big retailers have NFC enabled terminals. Yet, for entrepreneurs developing new way stop pay and get paid, the market for accepting card payments with your smartphone/tablet and paying with your phone is fairly saturated in terms of competition, which leads high barriers for new entrants.

So next big thing in mobile payments?

Peer-to-peer payments could prove to be the next unexplored frontier. While the universal acceptance of card payments has been made available for merchants, next is how to remove cash from paying your friends for things such as paying rent or splitting bills. No one carries cash anymore, and wiring money via bank transfers are always a huge headache. Venmo has been fairly alone in this space in the US. In Europe we have a few companies/apps giving a shot to the market, such as Lendstar (Germany), Payfriendz (UK), Lydia (France), and MobilePay by Danske Bank (in the Nordics). Nevertheless they haven’t been able to make any bigger waves so far.

It’s merely a matter of network effect. Get those users, get the market.

If you think about who will be the best equipped to provide the peer-to-peer payment to the market. It’s of course Facebook. And in case you have read tech news in past few weeks, you might recall that there was a leak of screenshots that reveal friend-to-friend payments via Facebook messenger. This also makes sense. With its massive user base, Facebook can leverage already existing messaging platform to introduce payments, whether it is through Messenger app or WhatsApp. Integrating friend-to-friend payments to an existing messaging app would be the best choice. Paying to a friend is also a mean of communication. As you share pictures from last night with you best friend, it would be only smart to split the bill within the same app.

I wonder why other messaging apps haven’t yet looked into this area...