Capitalize on social payments

Social payments methods like Venmo and Cash App continue to grow in popularity, and the data is there to prove it, creating an opportunity to give customers what they want: 24/7 access to cashless, P2P and mobile transactions. So how do social payments fit in community banks’ long-term future?

Social payments have taken today’s digital environment by storm. A recent Mercator Advisory Group survey found that 69% of respondents have used PayPal in the past year, and a full 10% reported using Facebook Pay. In addition, reports indicate that Twitter may seek to expand its payments offerings.

These facts demonstrate how social channels are now woven into the tapestry of consumer and business behavior. Even after some slow starts from products like Facebook’s Libra, social payments, which constitute any transaction that occurs on a big tech or social platform, have taken hold.

“PayPal was the first company to offer this service, but with the explosion of social media, Facebook, Zelle, Square Cash App, Venmo, Apple Pay, Google Wallet and Twitter all support the feature today,” sums up ICBA Bancard president and CEO Tina Giorgio.

The widespread use of these apps has opened them up to becoming default accounts, making them home to standing balances. In fact, a 2020 NerdWallet survey found that 68% of consumers have maintained a balance in their mobile payment app, and on average, those who use them have allowed up to $287 to accrue before they transfer it to their bank. Those behaviors may pose a real threat to community banks.

“Super apps like PayPal have about $3 billion stored in their digital wallet, and Cash App by Square has well over $1.5 billion,” says Giorgio. “That means that those deposits are no longer in insured bank accounts, disintermediating banks from the customer relationship.”

“We know customers want to be able to do these things with low friction, but they are also worried about the risks of dealing with a nonbank company, so we provide them with the safety and security of their bank, while still giving them the ability to make the payments easily.”
—DJ Seeterlin, Chesapeake Bank

The community bank opportunity

But among these competitive concerns, possibilities emerge for community banks.

“Fifty-eight percent of those aged 13 to 37 are interested in purchasing items directly from their [social media] feeds,” said Tede Forman, vice president of payment solutions at service provider Jack Henry & Associates. “It really creates the opportunity for financial institutions to retain their customers and keep them within the financial services space by offering integration for social payment capabilities.”

Solutions including Zelle, a bank-based, closed-loop digital payments network, and CHUCK, an open network for instant payments from a consortium of banks, bring with them a frictionless payments experience emanating from the bank’s digital banking app. While Zelle is account-to-account, CHUCK is receiver-platform agnostic, allowing the recipient to take in a payment via the app of their choosing.

“Customers needed to be able to send money on these networks,” says DJ Seeterlin, chief information officer at $1.3 billion-asset Chesapeake Bank in Kilmarnock, Va., which offers Zelle and is in the process of launching CHUCK. “We know customers want to be able to do these things with low friction, but they are also worried about the risks of dealing with a nonbank company, so we provide them with the safety and security of their bank, while still giving them the ability to make the payments easily.”

Security is all

Safety and security repeatedly arise as key factors in customer decisioning. In fact, a 2020 Deloitte study found that more than 75% of consumers consider banks and credit card companies to be the best positioned to offer a financial superstore app, compared with technology companies or social media platforms. These findings point to security as a key differentiator for community banks in the realm of social payments.

“The opportunity for banks is to create a safer environment, a safer process,” shares Mickey Goldwasser, vice president of marketing and chief of staff at payments provider Payrailz, the white-label P2P solution that powers CHUCK.

“You’re not going to replace Venmo, but enough people trust the bank that they would use the product. So, now more and more folks can engage in a social payment.”

Putting customers first

As community banks consider the right approach for creating a digital payment experience within their institution, how they assess their customers’ needs matters. Whatever strategy they employ should align with customer behaviors.

Starting by analyzing existing data may lead them on the path to identifying the appropriate solution for their banks.

“I recommend monitoring the transaction trends to determine which social apps your customers are sending or receiving transactions from and what the growth rate on the various apps is to determine what education and product offerings they can provide,” advises Giorgio.

Seeterlin concurs: “We can’t overlook the importance of understanding where the customer needs to be. We need to try to understand what their needs are, really identifying what problem they are trying to solve and implementing on that.”

In factoring in all these variables, community banks will land on solutions that not only respond to customer expectations around social payments, but also solidify their connection with their customers and deepen the overall banking relationship.

“As community banks continue to offer services that support consumer behavior in payments,” says Forman, “you’ll see a shift in folks either wanting to continue to stay with financial institutions, or potentially bringing them back.”