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When sexting meets social payments

By Bailey Reutzel for PaymentsSource

Payments are inevitably merging with social media, but the mix comes with a clear and very public risk if not handled correctly.

The most recent cautionary tale comes from China’s Alipay, which introduced a social media feed called Circles in late November. The launch quickly ran afoul with users sending racy photos in exchange for money within hours of the app’s debut. The company hurriedly took down pictures and blocked related accounts permanently.

If this were the entirety of Alipay’s business model, this incident could have spelled the demise of the company. But according to Zennon Kapron, co-founder and director of Shanghai-based China Fintech, the incident won’t hurt Alipay in the long term.

“Chinese consumers have a relatively short-term memory when it comes to tech products,” he said. “There’s so much happening in the tech space in China, plus that’s just the nature of people in general.”

Alipay, the payments affiliate of Alibaba, did not respond to requests for comment, but its example is not the only one. The social image-sharing app Snapchat launched Snapcash — an adaptation of Square Cash — in 2014, and it was immediately adopted by adult performers despite Snapchat’s prohibition of monetizing porn via its service.

Even facing such risks, any company that wants to play a role in mobile commerce must have a plan for embedding its product in social media, said Jeremy Allaire, co-founder and CEO of Circle, a social payments platform that recently pivoted away from bitcoin (and unrelated to Alipay’s Circles social network).

“The No. 1 use of mobile devices is messaging,” he said. “There’s a very deep connection between the future of consumer payments and messaging, as the messaging user interface allows for more possibilities.”

WeChat, the default social media platform in China, is an example of just that. The project has been quickly taking market share from Alipay after launching a payments feature, currently accounting for 30% of the peer-to-peer payments market, said Kapron.

And Chinese merchants and consumers have been adopting these super apps (those offering multiple features) at an outstanding pace.

Since 2014, between 60% and 70% of named merchants have begun using these mobile platforms (AliPay, WeChat, etc) to accept payments, according to Kapron.

In the U.S., the clearest success story is PayPal’s Venmo, which built a following among millennials by designing its payments interface to resemble something more like Twitter than a banking app. But Venmo’s success is the exception, not the rule. Facebook’s WhatsApp doesn’t have a payment feature, and the purchasing capabilities of Facebook’s Messenger app is fairly limited and based on which companies have chosen to partner with it. Twitter has had a rocky relationship with companies that have tried to enable commerce via its platform, though the company eventually developed its own “buy button” in 2014.

Social media will likely be a beneficial place for payments when looking at the inordinate amount of time millennials and younger generations spend in messaging apps like Snapchat, WhatsApp and Facebook, said Dave Birch, director of UK-based Consult Hyperion.

“Payments are vanishing into the background of all activities; the same goes for social media,” Birch said. “If I’m talking to you on WhatsApp and I need to buy concert tickets why would I come out and open a banking app; I should just be able to do it within the messaging app.”

To Birch and many others in the industry, payments are disappearing and layering social media on top of transactions is just another way this “Uberization” is happening.

Alipay’s experience doesn’t spell doom for the social payments model. China’s forgive and forget mentality was highlighted last year when Alibaba launched Sesame Credit, a gamified digital credit rating service that received criticism for its Orwellian data harvesting. The company was not shy in letting reporters at the BBC know how people would be judged on the system, with idle people that play video games all day being docked points as compared to a mother, “who on balance is more likely to have a sense of responsibility.” And a Quartz reporter who signed up for the service found that because he wasn’t as loyal a user of Alipay as his friend, his rating was far lower even though he had a better paying job.

After the objections, Alibaba pulled back and reworked the system. And now, Sesame Credit is one of the leading credit platforms in China, Kapron said.

So how to keep a social payment platform clean? One of the features keeping Venmo out of Alipay’s trouble is that the app lets users send only built-in emoji rather than user-generated photos. So there isn’t incidence of inappropriate images being sent across the platform (Venmo did not respond to requests for comment before deadline).

But even this isn’t foolproof. Vicemo.com is a website that aggregates public Venmo transactions that may refer to the purchase of drugs, booze or sex. None of that is conclusive, of course; the use of Venmo’s pill and cigarette emoji could refer to legal activities, and many of the explicit drug references are likely made in jest.

Allaire’s Circle is taking a chance on pictures, although with less risk since all communications between sender and recipient are private.

“Circle organizes communication around people, not transactions,” said Allaire. Interactions are separated and listed in accordance with the people users transacted with, rather than presented as a list of payments as with a bank statement.

Despite private communications, people still abuse these systems. Circle has already encountered this, setting up a mechanism for users to block and report people sending transaction requests with inappropriate images or messages.

“There’s nothing that’s a new risk per se,” Allaire said. “Those risks of abusing messaging systems exist whether there’s payments involved or not.”

The company is required by law to report transactions that could be criminal activity. And U.S. know-your-customer requirements could further deter abusive behavior since user’s identity must be verified before they can transact.

Circle rids itself of some risk associated with unsuitable social content when it partners with other messaging platforms. The company recently partnered with Apple to allow Circle transactions to be initiated within the iMessage platform.

“When we’re in iMessage, we don’t control any of that, what pictures or videos are sent,” Allaire said. “Apple has strict guidelines of privacy. All the Circle app knows is that it’s putting an interactive card into the iMessage that allows the receiver to to click the link and claim the money.”

While this move should expand Circle’s user base (the company doesn’t share customer numbers), some wonder whether the startup will lose traction since it pivoted away from bitcoin, revoking users’ ability to buy, sell and store bitcoin within the app. Its deal with Apple applies only to a few government-issued currencies used in the U.S. and Europe.

According to Allaire, though, Circle’s global customer base continues to swell, about 300% over the past 12 months. In the US, the social payments feature is growing at an average quarterly rate of 47%, which seems humble compared to the features average quarterly growth of 119% in the UK.

Social payments, it seems, are becoming a worldwide phenomenon.

“If you look at how quickly Venmo, which isn’t even real-time, got adoption compared to [Barclaycard’s] Pingit, which is instant, you look at those two curves and learn … social media integration is really important,” Consult Hyperion’s Birch said.

And social media players will have an advantage soon in Europe. Through the new Directive on Payment Services (PSD2), banks will have to open up its application programming interfaces (APIs) to third parties soon. Facebook is getting ahead, recently obtaining both a payments institution license and an electronic money issuing license in Europe.

Despite the advances in the P-to-P realm pushed forward by social media, general purpose messaging apps still have some catching up to do when targeting the broader mobile commerce market, where retailers largely control the experience through their own apps, Birch said.

First appeared at PS

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