Facebook’s option to make easy payments through messenger aren’t new, but most business owners still don’t know its biggest drawback. Messenger payments are NOT meant to be used for merchant transactions, and business owners can even have their funds held for using it in this way. So, why can’t you use Messenger payments as an easy go-to for business transactions, and how would Facebook even know if you did? We’ll discuss why it’s a risk you don’t want to take with your business.
As a money transmitter, Facebook is not required by the IRS to complete certain forms for “peer-to-peer” transactions. This would change if it were transferring funds for business-to-person or business-to-business transactions. At that point, Facebook would be considered a merchant processor. Merchant processors are required by the IRS to fill out a 1099k at the end of the year. As well-being as a hassle, costly, and a time-consuming effort for Facebook, tracking 2.23 billion users’ payments would require regulation by the Financial Crime Enforcement Network. If Messenger payments is being regulated, that regulation would trickle down to their users, which means an underwriting process would need to take place. Merchant processors go through a prerequisite stage called underwriting, which determines if a business is safe enough to process for.
So what happens if they catch you red handed? You won’t serve jail time, but you might not see those transferred funds. In section 3 under Actions We May Take, the terms state, “We may cancel any transaction if we believe the transaction violates these Terms or the Terms of Service, or if we believe doing so may prevent financial loss.” Other outcomes include holding your funds temporarily or simply revoking your ability to use the app. Imagine selling a $1,000 flat-screen tv to a customer of your electronics company. You already shipped out the technology, but now you won’t get paid. None of these scenarios are worth risking for a sale, which is why we recommend setting up your non-cash payments with a real merchant service provider.
As a consumer using Messenger payments for peer-to-peer transactions it is not a bad option. Since its debut in 2015, there has not been one data security breach. The money transfer system fully encrypts debit card information through a process called tokenization. This means card numbers are switched with random characters and numbers that can only be decoded by the payment processor. Other pros include its familiarity. Many people use it every day anyway, so it’s very easy to request and send money through the app. Another great use for it is keeping track of your payments to a particular person. Many people use it to pay back rent to their friends, or for allowances to their children.
Some disadvantages of using messenger payments as a money transfer option are its limitation to debit cards, and it takes several days for a cancelled transfer to return. Unfortunately, the system can only function if both users have a debit card on file. It has not opened functionality with credit cards or account numbers yet. Also, Facebook isn’t making any money from it. That means that it may not be around forever because a huge company like Facebook is always looking to make a profit. Once a request for a payment has been sent by you to a friend, it can either be accepted or declined. The problem with this is that funds have immediately left your account after sending the request. If that friend declines it, your money is in limbo for up to 7 days until Facebook returns it. That’s not a big deal for a $5 coffee, but for your $700 rent, those 7 days can feel like a lifetime.
Messenger payments has its pros and cons for consumers, but it’s clear for business owners it is not a viable option to conduct everyday transactions. For that, we recommend you speak to a real merchant service provider about the best features and options for your business. We don’t blame you for being curious though, social media can be a powerful tool for your business! If you have time for it, that is. Talk to Red Door Consulting about putting some time back into your schedule and letting an expert take care of your social media!
Written by content writer, Hailey Tresch from PayFrog.
PayFrog is a family owned and operated company based in Colorado Springs, CO. They’ve been in the merchant services industry since 2010, representing people in business, non-profits, and government organizations to help them to get the best pricing and technology for electronic payment processing.