Post image for Glenbrook’s Model for Social Payments (A Work in Progress)

I’ve been thinking a lot lately about social payments, and have reached two conclusions. The first is that a payment facilitated by a social network is not a social payment—it’s just a normal customer-not-present payment. The second is that social payments are, by definition, social in nature and involve multiple parties. Hear me out on these two thoughts.

What if I used my Visa card to buy a cat flap being sold by a cat flap merchant on a social network? How is that really any different than buying a toaster from a merchant with a Yahoo store? It’s not. One merchant, one buyer, one transaction.

What if the merchant had a Facebook storefront and I was using my card on file in a Facebook wallet? I still say no difference. What if the merchant was enabled by Facebook to accept Facebook credits as a form of payment, and the merchant was subsequently funded by Facebook, minus normal Facebook payments acceptance fees? I’m still not biting. This would be intriguing in a Facebook-centric world, but still not a social payment in my mind. Still one merchant, one buyer, one transaction.

I’ve concluded that for something to be a social payment, it’s got to be social. It’s got to involve multiple parties paying at once. Or multiple parties being paid at once. Or one party buying and another party paying. On and on. The more I look at this, the more examples I find. Here’s a couple obvious ones:

  • Group payments. This is multiple people all on the same team, in the same club, or part of the same informal group funding a single payment. Everybody kicks in $18.73, for example, to cover chips and sodas for the little league team party. CircleUp comes to mind as an enabler in this category –– who’s paid, who hasn’t paid, etc.
  • Contingent payments. This is multiple people, maybe even strangers, all making partial payment towards funding an artist to create a community sculpture or a filmmaker to create a documentary. It’s all contingent, because if the overall funding goal isn’t met, all the transactions reverse and everybody gets their money back. KickStarter is a good example here.
  • Networked payments. This is little Sally buying something and then passing the hat around between her grandparents until she has enough to finalize the purchase. More formally, a promise to pay passed through a network of friends until the obligation is settled. Kwedit comes to mind here, particularly the “Pass the Duck” feature on a Kwedit Promise.
  • Dual-party payments. This is one person buying, another person paying. Happens all the time in business payments. But in the world of social payments this is Alice shopping online and having the bill sent to her mother. BillMyParents is the poster child here, but eBillme also comes to mind.
  • Parallel payments. One person with a bunch of IOUs or items in their shopping cart from various merchants, settles everything—in parallel with each party—though a single transaction. A good example is here is TwitPay. Payvment, a new multi-merchant shopping cart, also facilitates parallel payments. Note that in both cases, it’s PayPal Adaptive Payments doing all the work in “parallel” payment mode.

I’m sure other examples will emerge, and maybe even other categories. I just saw a new company called WePay profiled on TechCrunch. It passes my social payments smell test and falls into group payments. A WePay account is a PayPal-like account owned by the members in a group. Multiple people can fund the account, and the WePay system facilitates group purchasing. The group can even attach a WePay Visa debit card to the shared account. Put that in the annual report!

I’m still thinking about old-fashioned P2P payments (I love that P2P is considered old-fashioned, by the way) and don’t know if they fit or not. On one hand its pretty social. Grandma sending Gretchen money for her birthday. On the other hand, it doesn’t feel multi-party enough. Grandma could have done the same thing with a check and I’m pretty sure that’s not a social payment!

One might argue that all these social payment examples are just “applications” that take advantage of core payment systems. But I believe there is more to it, particularly when you start thinking about a single payment trigger setting off multiple payments, transaction reversals in a multi-party context, buyer recourse, consumer protection, multi-party fee structures, etc. It feels like something important is happening.

Social payments are intriguing, but they’re just one part of the emerging Web 2.0 payments ecosystem. My partner Erin McCune and I will be addressing this topic in more detail at the NACHA Payments 2010 conference in Seattle in a session entitled “Web 2.0 and the Emergence of Social Payments.” In addition to social payments, we’re be talking about the other Web 2.0 payment building blocks — micropayments, virtual currencies, game currency cards, offer-based currencies, and bill-to-mobile — and will be trying to put it all together so that it makes sense.

Be sure to look us up if you’re going to be at the conference. We’d love to hear your feedback on our model and learn more about what you’re thinking about the Web 2.0 payments space.

If you’re not going to be at NACHA Payments 2010, Glenbrook will also be exploring this topic in an upcoming webinar. Social Payments – Scenario Analysis will be held May 5th, 2010. Registration is open now.

7 Responses to “Glenbrook’s Model for Social Payments (A Work in Progress)”

  1. FredericBaud says:

    Hi Russ,

    This is what we’ve been tracking under the name P2PMoney within BarCampBank since a couple of years ago

    P2P is not that old fashioned after all. Plus, Social and P2P have been used interchangeably in numerous circumstances (social or p2p lending, social or p2p banking,…). So we’re seeing here another unfolding of P2P Finance (see for example ).

    Hope you’ll be able to join BarCampBankSF3 on May 8/9 to discuss this and many other subjects relating to innovation in banking and finance.

  2. One form of social payment I would really love to get is “Parent to Student” (“P2S” maybe?). I am the parent of a 20 year old studying 400 miles away. He is too old to want a teenager prepaid card like my own company, Plastyc, manages (he does not want me to nose around his transactions). He is too young for his own credit card since the CARD Act. So he is caught in the “plastic gap”.
    I don’t want to be the co-signer with him on a credit card – and he does not want that either-.

    Could I send him money electronically? My bank requires me to go to the branch with my ATM card and driver’s license to ACH money outside my checking account. Once at the branch, I need to fill out a paper form with 2 carbon copies! And then it takes 2 days.

    Sending money from my credit card to his debit or prepaid card is either not offered as an option, or when it is, it costs an arm and a leg because Visa has to charge a very high interchange rate to cover potential fraud.

    I can buy a MoneyPak from one of the neighborhood retailers and send the MoneyPak number by email or IM to my son. Green Dot does not like this too much, even though they can’t prevent me from doing it, because they don’t want valid MoneyPak numbers to circulate over unsecure networks, understandably.

    My son and I could both subscribe to OboPay, each set up an account and provide our mobile phone numbers; my son could get the prepaid card that comes with the service, I could ACH money to the Obopay account… wait, no, this would take the same 2 days again.

    Finally, I could get a prepaid card like his and share money from my card to his. Actually, we did deploy this service via a free Facebook application, so I guess this would be “P2S via Facebook” and might qualify as a social payment.
    But even I am reluctant to take up a dedicated card just for sending money to my son from time to time.

    Maybe we could get same-day-ACH soon? And a nice web interface to go with it from most banks?
    Keep us posted on what you hear at the NACHA conference.

  3. Great summary of the space! Keep thinking of bringing the P2P Lending (“Prosper a like”) model down to a social level at checkout too…. Social Credit… probably hard to model the risk, but then again close-knit social networks have different dynamics… ! Exciting times!

  4. Russ- I’m thrilled that you and the team are trying to draw a box around the oft-used social payments term.

    Our Company GroupCard falls into the category of group payments, specifically “group gifting” where we let the contributors roll the gift up into a stored value gift card for the recipient. Though we started before social payments was really a buzz term, we’ve no doubt benefited from the power of social platforms for communication channels, social context, and payments/fraud enhancement.

    Looking forward to seeing you on May 5th!


  5. Tom Laine says:

    Interesting thoughts, I’ll pitch you one more…
    I’ve been lately researching and evaluating different social media tools and networks for my upcoming blog, and ran into a new kind of social network with a very special transaction model.
    The company (or rather ‘the system’) offers a platform for swapping items, individual-to-individual, no companies involved. It’s a bit like social flea market of sort. You upload items that you no longer need or want, and list items you’d like to have in exchange for these goods. There’s pretty much anything on offer, from second hand clothes to DVDs and from flat screen TVs to furniture. Someone even offers a flat screen 40″ TV in exchange for an old BMW.
    It’s all about the number of users in the system that effect how likely it is for a swap to take place, how often do needs and haves meet. But at this point the beauty of the system kicks in – they have a built-in engine that evaluates wants and haves all the time, creating (and suggesting) swap-rings. A swap-ring means that you give an item to one person, he/she gives an item to the next, and so on, until you finally receive an item you wished for, and it comes from someone you don’t give anything to. All the transactions in the swap-ring are pre-approved by the attendants, so that everyone commits to the swap before any items change hands. Talk about recycling…
    What if money or service would change hands in this kind of swap-ring environment. Company A needs a service, but pays to company B, B performs a service to C, etc. until A gets the item they paid for. Social payment? I would say so. Likely to happen in B2B or B2C? Hard to say, but I would say not impossible scenario if you combine online and real-world transactions for example. What do you think? Would love to hear your thoughts on these kind of new wave of social media platforms. Also, what do you think about the new ‘social tipping’ tools like Flattr? I’ll be covering these kind of tools and platforms in the upcoming blog, and would appreciate your thoughts on the subject.

    Tom Laine

  6. John Ogden says:

    Our company is in the business of making high volume, low dollar global payments for online based business. Social Media payments are exactly that. I could best describe PayQuicker as the Skype of banking. Member to member transfers are; instant, FREE and require no credit and carry no % based fees. As with Skype if you make use of the off net services small fees apply. Funds are FDIC insured and account limits are massive. PQ is not a toy but is as easy to use as one. If it does not become a contender it is not because it is not the perfect solution for the Social media payment market.

  7. Mike Brenner says:

    Social Media is definitely the future and although credit card payments have been around forever, they are still what are going to be used for payments online to these social sites. We focus stricly on payments for emerging and social markets like Daily Deal sites, social gifting, etc etc and we are able to place business that other processors either don’t understand OR don’t have the relationships to place.

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