Unfriending cash in a social network economy

News of the death of cash always has been exaggerated, but the wounds being inflicted on notes and coins multiply. On March 17, Facebook, the world's biggest social network,announced that in America its instant-messaging app soon will allow users to send each other money as easily as texts and photos. All they need to do is to link their debit cards to their Facebook account, tap on a dollar sign in the app, type in the amount and press send.

Facebook is not the first to enter the market for free person-to-person payments or, as the geeks have it, P2P. In November, for instance, Snapchat, a messaging app that lets users send each other photos that disappear after a few seconds, introduced a service called Snapcash. It competes with Venmo, a popular money-transfer app owned by Paypal, an online-payments firm. In Asia messaging apps such as Wechat and Line, have offered person-to-person transfers for some time.

The incumbents don't have to worry too much, at least for now. In contrast to Snapcash and Venmo, Facebook's service does not make instant payments: The money arrives after a few hours or even days, depending on how quickly users' banks act. This is because money is not transferred between accounts managed by the social network, but goes through conventional payment channels from one bank account to the other.

Still, Facebook's new offering is further proof that technology companies are moving onto banks' turf. Next month Apple will begin selling its smartwatch, which lets consumers pay by waving their arm at the cash register. This will help the company's new contactless-payment service, which already accounts for two of every three dollars spent in America by gesturing with a smartphone or a card. Google recently bought Softcard, a mobile-payment service, to boost its own payment app and catch up with Apple. Meanwhile Naver, South Korea's biggest online portal, will launch a new mobile-payment service in June.

Were Facebook to expand its offering internationally and make it truly instant, the impact could be huge. Facebook has 1.4 billion members, and its messaging service has 500 million users. Many doubtless send remittances across borders, and some probably are unbanked.

The regulatory and logistical challenges of serving such customers would be huge. Banks struggle to profit from them. Then again, that is exactly the sort of challenge that tech firms relish.

From the Economist magazine.