- Instagram wants its users to be able to purchase items they see on IG posts
- Lawyers advise that social media sites need to consider what they want to integrate to their platforms
- A number of messaging apps already have money transfer capabilities
Photo sharing platform Instagram will offer financial services soon, according to reports. An announcement this week said that the social media site will have a “checkout” feature soon. Instagram is not alone as its parent company Facebook will be releasing its own digital currency while their competitor Snapchat already has the feature.
WeChat, a messaging app popular in China, allows its users to transfer money internationally at really affordable overseas transfer rates. WeChat is gaining ground in the payments industry, observers say, and it is mainly because it is accessible and easy to use.
This new development at Instagram will make it possible for users to purchase products from a post. According to Instagram, the feature will be rolled out in the coming weeks. Users will not need to leave IG if they transfer money, insiders say.
“I think it’s a huge value add because it makes for your product to be more of a one-stop shop. It also drives traffic, if you have everything available and you can check out”, said Barrie VanBrackle, a partner at Orrick, Herrington & Sutcliffe who co-leads Instagram’s fintech team. Paul Hastings' partner Behnam Dayanim agrees. Dayanim told reporters this week that financial services can help apps like Instagram monetise their users while keeping them engaged. A partner at Paul Hastings, said offering fintech services can help companies monetize users and keep them engaged.
The only problem is, the move is a huge transition from a regulatory standpoint. Lawyers say that fintechs need to slow down when it comes to adding new features to their apps.
While social media platforms are already regulated, lawyers reiterate that the compliance landscape in the fintech industry is very different. They note that in-house counsel will need to talk to their directors about said changes and the requirements that need to be accomplished before offering a financial service.
“The idea of ‘move fast and break things’ doesn’t work as well when you’re in a highly regulated [industry]”, said Rebecca Simmons, one of the partners in Sullivan & Cromwell‘s financial services and capital markets groups. “So we do see people sometimes surprised at the amount of time it takes,” she added.
This is especially true if a social media company chooses not to involve a bank in delivering these services. Simmons said that venturing into fintech means Instagram will need to get a license to become a money transmitter.
Dayanim says that doing this “is not a small undertaking” noting that Instagram and other social media platforms need to examine what they want to achieve by adding financial features to their apps.
It is a difficult undertaking, according to VanBrackle, because companies have to determine what they are in the fintech landscape. Asking if they are just a merchant, for example, will be helpful, VanBrackle notes. Social media sites also need to define whether they want to become a payments processor or want to actually move money from one place to the next.
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