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By: Michelle Evans

Not only can old and new friends alike connect and send well wishes on the social media website, Facebook, but now they also can send one another funds through the popular money-transfer service, PayPal.

Online payments behemoth PayPal has rolled out a new Facebook application dubbed “Send Money,” which will enable the 800 million Facebook users to send payments to their friends or businesses via the social networking website or cash-filled e-cards. Facebook is not officially behind the app, but merely the platform for where it is being hosted.

The app, which redirects to the PayPal site to complete the transaction and requires the sender to know the receiver’s email address, allows the payer to choose to either send a monetary transaction on its own, or to include a personalized e-card—say, for a birthday or other special occasions where money may be given as part of the celebration. Cards are posted to recipient’s Facebook Walls, although the message is kept private.

Users also can send money not only to Facebook friends, but to anyone with an e-mail address as long as both parties have a PayPal account. There is no fee from PayPal for sending and receiving such transfers to Facebook members in the United States as long as the transactions are conducted via bank or PayPal accounts and fall below the standard limits of US$10,000 per transaction . Using a credit card incurs a merchant fee of around 3%, the same the user will incur through traditional PayPal transactions. The eBay-owned financial company tacks on a service fee for international transfers as well.

Although there are other ways to make a payment with PayPal through Facebook such as Payvment, the Send Money app is the first peer-to-peer payment system pairing up the two entities directly. This relationship reinforces the growing link between social media and e-commerce. Both companies have been dipping their toes into all kinds of payment technologies of late.

For example, PayPal has made a number of acquisitions in 2011 and through its own product announcements have shown it is serious about mobile and location-based payments. Just in the last few weeks it updated its Android application to enable NFC payment. Facebook has entered the payment space as well with the introduction of its proprietary Facebook Credits, which is a currency frequently used to purchase premium features within Facebook games and other apps.

The truth is that Facebook and PayPal make a powerful duo. Facebook has over 800 million members with an average of 130 friends each. Half of the users log on daily, according to Facebook. Additionally, 80% of PayPal’s 94 million active accounts users also use Facebook. Clearly, PayPal also saw the potential for Facebook’s ability to drive users to the PayPal site and by extension drive transactions, too.

For businesses, Send Money provides another opportunity to leverage a social networking presence to engage with customers. Customers returning goods could be offered the option to receive money via PayPal or businesses could use the app as a way to transfer funds to customer owed money as part of a rebate or rewards program.

Although PayPal has been pushing the service as a way to give a monetary gift along with an e-card as the benefit of Send Money, it in fact might not be the best use of this new service in which the main purpose is for PayPal to find a way to gain traction with Facebook’s massive user base.

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