Facebook and peer-to-peer payments

Facebook’s upcoming move into peer-to-peer payments brings it into a crowded field. The most obvious competitors are Square Cash, PayPal’s Venmo and PayPal itself. There are also competitors on the bank side, including Popmoney and Chase QuickPay.

Clearly Facebook is in a strong position to dominate the space. But with a near universal user base in the United States, that could be said about any space Facebook enters.

Facebook Payments will leverage the Messenger product and let people send money back-and-forth while messaging each other. Instead of using ACH, the system uses debit cards. (Just like Square Cash.)

Some of the big questions are:

  • How much will Facebook promote this product? A product without promotion will easily get lost within Facebook. Many Facebook products have died for lack of promotion.
  • Does this meet with the needs of Facebook users? Even heavily promoted products can fail. Facebook’s Gifts product was promoted all over the site and still failed. Part of this was due to the quality of the product, but it likely wasn’t improved because it didn’t get traction. If they’d fixed the holes — such as lack of personalization — it might have done better.
  • Is person-to-person payments a big market? Obviously remittances and trans-border transactions are, but that’s a completely different problem.
  • Is there a business model here? For P2P itself, it’s unlikely. There are too many free options. It becomes interesting if Facebook moves into person-to-merchant transactions.

Facebook has many mechanisms to promote the product:

  • Initial messaging within Messenger when a user is provisioned for the product.
  • Messaging on the news feed when someone signs up. e.g. “Rocky just signed up for Messenger Money.”
  • Messaging on each transaction, a la Venmo. e.g. “Rocky just paid Stan for dinner.” This will probably turn off a lot of people (e.g. age >30), but seems to be popular with the Venmo crowd. For them, it would be a powerful form of marketing.
  • Indicators in status lists showing that a person can be paid via messenger.
  • Contextual messaging triggered by words in messages like “owe” and “pay.”

Facebook has had promotional successes before. I consider people tagging in photos one of the greatest viral moves ever.

The mobile indicator that showed in the early days of mobile status updates provided a subtle sign that something new was going on. Its presence encouraged others to wonder what was going on and how they can update status from their mobile device.

For as much time as people spend interacting on Facebook — especially about things they did in real life — it makes sense that people would want to pay each other.

If Facebook can get people to use P2P in messenger, it opens up money-making opportunities in commerce. If I can pay for a purchase simply by sending a message, it should encourage me to transact more. And if users are comfortable using their debit cards, Facebook will make a lot of merchants really happy and give the merchants more reasons to promote Facebook.

There are a lot of IFs here, but there’s a good chance that Facebook can make a dent in this market. PayPal’s need to put out a statement about the Messenger payments product is an indication that they’re scared about the social media giant.

Corporations have the right to strip consumers of their rights. Sound fair to you?

Nearly four years ago, in a case called AT&T Mobility LLC v. Concepcion¸ the Supreme Court ruled 5-4 that the Federal Arbitration Act of 1925 preempts any state law that prohibits a contract from barring class-wide arbitration. That dense bit of legalese essentially means that any corporation can take away your right to sue them in court, and instead force arbitration of your dispute. Not only that, but you can only arbitrate the dispute as to your claim alone — you cannot include any other people who may have been harmed by the same conduct.

Let’s apply that principle to a fictional example: One million people purchase Wonderland Cable Company’s basic cable package with free equipment upgrades for two years for $50 a month. Six months later Wonderland discovers that customers can easily pirate their content due to a flaw in the original set-top boxes and decides to give all customers a new box containing better piracy controls. The upgrade really eats into the bottom line, so Wonderland adds a $2 “infrastructure maintenance” charge to each customer’s monthly cable bill to avoid taking a loss. A smart customer sniffs out the fee as a disguised equipment charge and seeks to sue Wonderland to eliminate the $2 fee and to refund all the money Wonderland has collected for the fee from its customers.

Easy lawsuit right? Wonderland clearly promised no upgrade fee for two years but then charged one almost immediately. Under current law, however, that lawsuit would be thrown out of court and into arbitration. In arbitration, the smart customer could only seek a refund of the money he or she paid, and could not seek a refund for any other customers. Other customers would have to file and participate in their own arbitration proceedings to seek to recover their improperly charged fees. How many people would do that over a $2 monthly fee? That’s only $24 a year. Given the cost and time it takes to participate in arbitration, most people will simply ignore it and continue to pay. The result in this example is a $24 million win—each year—for Wonderland Cable.

The problems with mandatory arbitration clauses in consumer contracts are clear. First, you don’t have a right to sue in a court of law if the company wrongs you. This means you lose many important rights, and many others are extremely limited. For example, arbitrators, unlike judges, are not required to follow the law. Second, companies tend to prefer arbitration over litigation because the system favors them. They are, after all, the arbitrators’ biggest customers and have no incentive to hire arbitrators who frequently decide against them. That, coupled with arbitrators’ ability to decide disputes independent of legal precedent, creates a dangerous and uneven playing field for consumers. Third, by killing the right to bring claims as a class action, each customer must initiate her or his own arbitration. Since most people do not, or will not, start arbitration, companies effectively insulate themselves from accountability to their customers by paying out to the few who make enough noise. Finally, arbitration proceedings are private and confidential, meaning that companies are able to silence that noisy minority and limit publicity of their wrongdoing. Many customers won’t ever know they’ve been harmed, and the company no longer has to fear negative news coverage.

So how widespread are arbitration clauses? In December 2013, the Consumer Financial Protection Bureau issued a preliminary report detailing the use of arbitration clauses in consumer banking agreements. The report cited arbitration clauses in more than 50 percent of credit card loans, 81 percent of prepaid charge cards and in checking accounts covering 44 percent of all insured deposits. Those numbers continue to rise. Of those contracts, around 90 percent bar participation in class actions in both court proceedings or arbitrations.

Such clauses are not limited to bank and credit card agreements. They are now standard in cable and satellite television contracts, cell phone contracts, auto purchase agreements, nursing home agreements, airline ticket agreements, employment agreements and have begun to expand quickly into Internet commerce sites as part of the terms and agreements that almost no one ever reads.

What can you do? You can find the clause, cross it out and initial it before you sign any contract, though that may not stand in court. You can refuse to do business with companies demanding arbitration, but that is not always practical. The best solution is to voice your concerns to Congress. Short of a rebalancing of the Supreme Court in favor of consumers, the only people with the power to bar mandatory arbitration clauses are the people who make the laws. Contact your congressperson. Or, better yet, vote in members who aren’t diametrically opposed to your own economic interests. You are given a voice in who makes the laws and how the laws are made, so use it.

Chuck Marshall is an attorney at Marshall Law Firm.

redesign | transport: Brilliant move by metromile to offer special Uber insurance

The insurance industry has been slow in adapting to the new economy. Companies like Uber and Airbnb challenge the traditional delineations in insurance: personal vs. business use.

Personal insurance is designed to cover non-commercial use. If you, your friends and family are the only ones using your property, the risk is lower than if a bunch of strangers come and go. If you’re driving your car alone, the risk is lower than if you’re transporting a passenger. As a result, personal lines are cheaper.

Uber and Airbnb had been relying on personal insurance to cover damage and liability with their products. That clearly wasn’t going to be sustainable. So legislation was passed to make commercial liability insurance mandatory in some cases.

But that created another problem: it screwed drivers for Uber and Lyft. Auto insurance is rated in part based on the number of miles you drive. Uber driving was raising that number, even though that driving was not insured. It was fundamentally unfair in the other direction.

I suggested a few months ago that drivers will be able to back out the mileage that they are “on the clock,” when the insurer wasn’t actually providing insurance.

Now, Uber has partnered with Metromile to do just that. This is a great example of an insurer designing a product to fit the new economy. Metromile’s original product (I’m a customer) had already improved the status quo. It uses a dongle that plugs into your car’s OBD-II port to talk with the network and your phone. Because of that, it can tell you each trip you took, how far you drove, approximately how much you spent on gas, etc. Metromile goes even further: it can tell you where you parked your car and whether street sweepers are going to come by and hit you with a $75 fee.

This is a move that makes sense for anyone who does serious mileage on Uber. I’d expect other insurers to follow with similar models, though that will likely take months (if not longer).

The insurance industry can get creative when it needs to be. If insurers can come up with a policy for trained bears (value: $250,000) in Hollywood, they can certainly insure the new economy.

redesign | mobile: Why Google’s MVNO is unlikely to make a huge impact

The Information reported that Google will be launching an MVNO, reselling wireless service from the Sprint and T-Mobile networks. This has little chance of making a significant impact on the U.S. wireless market.

What is an MVNO?

To understand what Google is doing, it’s important to understand what an MVNO is. The acronym stands for Mobile Virtual Network Operator. These are companies that buy network service from companies like AT&T, T-Mobile, Sprint and Verizon at wholesale prices and then resell them to consumers at retail prices. Often, these prices are much lower for low-usage customers than the big brand names. The MVNO handles pricing, packaging, marketing, billing and customer service. (This is a simplification.)

Why do MVNOs exist?

There are three big reasons:

  1. Carriers suck at specialty marketing. Virtually all of carrier marketing is focused on the mass market. Going after smaller segments isn’t their thing. With MVNOs, they let someone else handle that. Consumer Cellular (one of my favorites) targets seniors. Tracfone targets lower income customers. Even retailers like Target (Brightspot) and Walmart (StraightTalk) have their own mobile brands.
  2. Carriers are focused on increasing ARPU, because that’s what Wall Street looks at. If you look at what gets marketed, it’s typically plans that start at $100. Their financials can separate retail from wholesale ARPU.
  3. Carriers have excess network capacity and want to make money for it.

What Google lacks

  • Customer service. This is something that the company is not known for; although its service reputation isn’t nearly as bad as PayPal’s, it is a brand associated with little to no service. (To be fair, I had a great experience with Google Drive phone support.)
  • Retail. Google has no retail experience to speak of. There is a reason there is a wireless company store or three every block in urban areas — it works! Even Apple has its own, highly lauded distribution network.
  • Marketing. Having a hugely successful product with almost no marketing has resulted in Google’s almost complete inability to market products. See: Google Wallet, Nexus, Google TV, Google+…

Some have compared a Google MVNO with Google Fiber. Yes, both are in communications. But Google Fiber is bringing something unique to customers — extremely high speeds. A Google MVNO would have no such differentiation. Being on lesser networks would also make it harder to draw customers from the big two, substantially limiting the market.

It’s extremely bold for Google to try an MVNO. It’s something that not even Apple or Amazon has attempted. And both companies are much better at customer service and retail.

redesign | apple: What’s wrong with how Siri is responding to a request to send a message?

The big issue here is that Siri says “I’ll send your message.” Was it sent? Or is it stuck somewhere? Will it be sent immediately or 10 minutes from now?

The interface doesn’t reflect that the message was ever sent.

Apple does things like this because they want Siri to appear conversational. In some cases, it responds “Done.” to the same command. If you were to ask a friend 10 times to do something, the response each time might vary: “Yup” “Got it” “Done” “I’ll do it.” etc. That makes sense when you’re talking to a human. Not so much when you want predictability from your phone.

From redesign’s Victor Marks:

Bonus points for this comment:

Apple clears the message information off the screen and wastes a lot of real estate.