Twitter may be much smaller than Facebook, but its ability to innovate in payments is allowing it to outgun its much larger competitor, at least for the time being. 

Both Twitter and Facebook are competing with other tech giants, including Apple, Google, PayPal and the leading credit card companies to own the emerging mobile payment sector, which is immensely popular with consumers and has proven fertile territory for startups. More specifically, the leading technology companies are seeking an advantage in so-called peer-to-peer payments, which are typically smaller payments sent from one person to another. Individuals could use such payments, for example, when they are splitting a bill or to wire money.

Over the weekend, the Financial Times reported that Twitter now allows users in France to tweet payments to others in their social network. Last week, news leaked out that Facebook will soon enable payments via the social network from debit cards. 

Although details of the pay by tweet function are scant so far, S-Money, a payment division of Groupe BPCE, one of the largest banks in France, is reportedly behind the deal. It is unclear when U.S. consumers will have access to the payment service.

"(S-Money) offers Twitter users in France a new way to send each other money, irrespective of their bank and without having to enter the beneficiary's bank details, with a simple tweet," Nicolas Chatillon, chief executive of S-Money, BPCE's mobile payments unit, told Reuters.

In September, Twitter rolled out a "buy" button for select groups of users, which will allow them to buy products and services directly from their Twitter feeds from various partners such as Burberry and Home Depot. 

Social Media vs. Big Banks

One advantage that social media firms have over traditional banks is that users in a social network already know each other, says Andy Schmidt, research director at CEB TowerGroup. 

"Firms like Facebook have a greater advantage than others because your contacts consist of friends and family, the people you are most likely to have P2P transactions with," Schmidt says.

Additionally, such payment capabilities could prove to be particularly good for consumers without bank accounts and for wiring money overseas.

The downside, Schmidt says, is making sure the payments are secure. While the social media sites can ensure payment information is encrypted on their end, customers usually secure their social media accounts with weak passwords. That leaves them wide open to hack attacks.

Analyst Nathalie Reinelt, from research firm Aite Group, also worries about the "me-too" attitude of companies not devoted to payments who are rushing to get into the space.

"Seemingly overnight, payments has become the 'it' thing in Silicon Valley, but we have yet to hear any true success stories from companies who aren't dedicated to payments itself," Reinelt says. "Time will tell what consumers will ultimately decide."

Apple's Not-So-Secret Weapon

Meanwhile, this weekend, the tech press reported on leaked screenshots of the new Apple Pay, which reveals deeper ties to consumers' banks than previously thought. Consumers can store up to eight credit cards in the wallet of the new iPhone 6, as well as the banking apps associated with each card, and the cards themselves will reportedly be updated automatically when they expire.  

Apple is somewhat unique in choosing a "nearfield communication" chip to secure its payments. Although merchants need a special terminal that allows consumers to pay simply by tapping their phones, no card information is actually transmitted at the time of sale. Instead, an encrypted token will be used to settle the transaction. Apple Pay will reportedly be available for consumers to use within a week. 

Published on: Oct 13, 2014