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Snap Bails on Peer-to-Peer Mobile Payments

By Evan Niu, CFA - Jul 23, 2018 at 8:19PM

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Snapcash will be discontinued at the end of August.

Snap ( SNAP -1.83% ) first introduced Snapcash back in 2014, a peer-to-peer (P2P) mobile payments service that was launched in partnership with mobile payments leader Square. That was shortly before larger rival Facebook introduced P2P payments in Messenger, which similarly allowed users to send funds as easily as you can text.

More recently, juggernauts like Apple and Alphabet subsidiary Google have also been adding P2P mobile payment options in the form of Apple Pay Cash and Google Pay, respectively. There's also PayPal's ( PYPL -0.29% ) Venmo, which remains the overall P2P top dog. With competition intensifying, and P2P features often being money-losers, Snap is now bailing.

Person holding a phone with dollar signs floating around it

Image source: Getty Images.

Snapcash is disappearing

TechCrunch reports that Snap is shuttering Snapcash effective Aug. 30, 2018. The report notes that much of the usage of Snapcash may have been for selling sexual content on the Snapchat platform, which gained notoriety in the early days in part as a service where underage users could send ephemeral sexual content, helping to avoid parental scrutiny as well as law enforcement.

In recent years, Snapchat has been trying to distance itself from those historical connotations (with limited success) as it tries to become more of a mainstream social media platform. If the predominant usage of Snapcash is for sexual content, that undermines the progress it has made in making its brand more family-friendly.

Snap has never disclosed what kinds of payment volumes were being sent with Snapcash, but regulatory filings often include this note: "We have not recognized revenue related to Snapcash to date." P2P payment services are famously unprofitable, since most users have little to no propensity to pay fees in order to send a few dollars to a friend while splitting a restaurant bill, while there are minor costs associated with processing those payments.

Meanwhile, Venmo absolutely dominates the P2P space, achieving coveted "verb" status. Venmo's total payment volume (TPV) soared 80% in the first quarter to $12 billion, and on a trailing-12-month basis it has processed over $40 billion in P2P payments. With TPV skyrocketing, Venmo's adoption and momentum are only accelerating.

Snap needs to focus on its ad business

The news comes as Snap has been exploring e-commerce, allowing advertisers to sell products with Sponsored Lenses without ever having to leave the app. E-commerce is one of the more promising opportunities that Instagram is also looking to capitalize on. Killing Snapcash seems like a step backward in its e-commerce ambitions.

More broadly, Snap needs to be focusing on its core advertising business right now, which is still struggling to grow and mature. That's why it's so confounding when the company pursues distractions like its start-up incubator/accelerator or plan to get into gaming. Snap has been regularly laying off employees, including a 7% head count reduction earlier this year -- more evidence that it needs to cut costs and pay more attention to growing ad revenue. Snapcash was clearly a distraction, too.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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