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Snapchat Enters Mobile Payments Market

When I heard late last year that Snapchat had turned down an offer of three billion dollars for the company, my first thought was, what sort of person would turn down that sort of money for a company that has never made a profit and has no real model for monetization? It turns out the answer is that it was the sort of people who were too young to remember the last Internet bubble. Having turned down the easy exit strategy, Snapchat had no alternative but to find ways of monetizing their product. Their latest effort is to provide a payments system.

Snapchat has historically had a limited grasp of security issues. They have suffered from spam attacks, exposed users’ contact information, and made it easy to record permanent copies of pictures and videos that were supposed to be ephemeral. Their reaction to one security breach was to hire a public relations company rather than encryption experts. However, they are not handling the payments themselves, thank goodness, but are teaming up with Square, the mobile credit card processing company.

Square themselves had a potential security vulnerability in the early days. The original square reader used an unencrypted audio signal to transmit credit card data to the mobile device, which would have made it possible to skim card numbers using a rogue app. However, this has been fixed in the current version of the hardware. A forthcoming release will handle credit cards with embedded chips that will be standard in the US by this time next year. Square has been a tremendous boon to small and micro businesses. Street vendors, farmers’ market stalls, authors at readings, artists at conventions, or anyone who wants to sell at different locations can now accept credit cards. On author I know says that since getting a square reader, the number of books she sells when she goes to an event has more than doubled.

Snapchat will be joining Venmo and Paypal in the mobile payments market. I own a rental property, and when my tenants, who are in their twenties, asked if they could pay the rent using Venmo I was a little taken aback. However, I was soon won over by Venmo’s simplicity, convenience, and uncluttered user interface. I’ve also been a Paypal user since it was launched, and use it all the time for online shopping, but tend to prefer Venmo for person to person rather than person to business payments.

For making purchases in bricks and mortar stores, Apple’s new Apple Pay service allows you to use an iPhone 6 or Apple Watch instead of a credit card. Apple seems to have done a good job with the security on this. Credit card numbers and personal information are not exposed in any way, and the other apps installed on Apple devices are approved by Apple, so the possibilities for credit card skimming seem to be minimal. If the bricks and mortar payment system is a success, there is no doubt Apple Pay will soon support other types of payment and aim to become a complete credit card replacement. However, Apple is unlikely to get deep penetration into the person to person transaction market that Snapchat is aiming for, as they are unlikely to provide support for Android users.

It will be interesting to see if Snapchat can leverage their huge user base in the younger demographics into the adoption of a new person to person payments system, and then perhaps expand that to person to business use. If they can, then perhaps they were right to turn down that three billion bid from Facebook – but for the time being my money, quite literally, is on Venmo and Paypal.

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