Facebook launches money transfers service as Treasury confirms payment systems subject to new UK regulations

Financial services and technology law expert John Salmon of Pinsent Masons, the law firm behind Out-Law.com, said that consumers' existing engagement with Facebook's social networking services means the company can overcome challenges in getting consumers to take up new mobile payment services.

"Consumer trust is a major issue in the financial services market, as we discovered in our research last year," Salmon said. "We found that most consumers still see themselves using retail banking services provided by traditional banks in two years' time, whilst those who would consider using retail banking services provided by non-banks would be more likely to select online payment providers like PayPal than the likes of retailers, new 'challenger' banks, or technology companies moving into this area."

"Conquering security issues is vital to winning consumer trust in banking and payments. Banks have a history of delivering secure services and there is inherent conservatism from consumers when they assess new entrants into this market. However, companies like Facebook have a track record of launching innovative consumer-friendly technology and can use that and the fact there is already strong engagement with their social media services to build a presence in the payments market," he said.

Salmon was commenting after Facebook announced that users of its Messenger mobile app in the US will be able to engage in peer-to-peer money transfers with friends in the coming months. The new free service will work by allowing users to enter debit card details when selecting a new payment mode when communicating with friends. Individuals will be able to receive payments via the messaging service by entering their own debit card details.

Facebook said that it has developed the service with payment security "a top priority".

"We use secure systems that encrypt the connection between you and Facebook as well as your card information when you ask us to store it for you," Facebook said in a company blog. "We use layers of software and hardware protection that meet the highest industry standards. These payment systems are kept in a secured environment that is separate from other parts of the Facebook network and that receive additional monitoring and control. A team of anti-fraud specialists monitor for suspicious purchase activity to help keep accounts safe."

"The first time you send or receive money in Messenger, you’ll need to add a Visa or MasterCard debit card issued by a US bank to your account. Once you add a debit card, you can create a PIN to provide additional security the next time you send money. On iOS devices you can also enable Touch ID. As always, you can add another layer of authentication to your account at any time," it said.

In the UK from the 1 April, a new regulatory framework for some payment systems will come into effect. The Payment Systems Regulator (PSR) will be tasked with promoting effective competition and innovation in certain payment systems designated for regulation by the UK government and ensuring that those systems are operated and developed in the interest of business and consumer users of those systems. 

On Wednesday, the Treasury published its final plans on the designation of payment systems for regulation (19-page / 387KB PDF) following a consultation on the issue. It confirmed that the Bacs, Cheque and Credit Clearing, Northern Ireland Cheque Clearing, CHAPS, Faster Payments, LINK, MasterCard and Visa payment systems will be subject to the PSR's oversight.

In its report, the Treasury said that it had reviewed its decision not to include PayPal within the new regulatory regime and concluded that it is right not to designate the PayPal payment system for regulation at this time.

"PayPal’s transaction volumes remain low as a proportion of the card-funded online payments market and as a proportion of the wider payments market at this stage," the Treasury said. "Information gathered also indicates that there could be a very small number of merchants that only accept PayPal, but in these circumstances a 'guest' payment option, which allows a customer to pay with another payment method such as credit or debit card instead of a PayPal account, is still available."

"As a general rule, the Treasury understands that PayPal is not at present a 'must-take' payment option for merchants, and card payments are still the preferred option for customers when making an online payment. As such, the Treasury has decided not to designate PayPal at this stage. The Treasury will be able to reassess the situation at its next horizon-scanning meeting, and then at subsequent meetings," it said.

The Treasury has also elected not to designate the American Express payment system or any mobile payment services for regulation by the PSR.

"Respondents [to the consultation] agreed with the Treasury that there are a number of other payment systems that are currently too small to warrant consideration for designation or are not operational in the UK – for example, Paym, Zapp, M-Pesa or Google Wallet," it said.