In a move that could pave the way for commerce-enabled ads, social messaging application Snapchat has teamed up with Square to offer peer-to-peer payments.

Mobile P2P payments make a lot of sense for Snapchat as both skew heavily towards millennials. However, as mobile payments gain steam thanks to the launch of Apple Pay, Snapchat could also be laying the groundwork for a broad commerce strategy.

“For Snapchat, this is likely the thin edge of the wedge for its commerce plans and broader monetization strategy,” said Jordan McKee, senior analyst at Yankee Group, Boston. “Conceivably, Snapchat and Square are leveraging the partnership as something of a head fake to increase card on file.

“Over time, this could help pave the way for Snapchat to enable users to make in-app impulse purchases directly from its advertising partners,” he said. “Such functionality would allow it to charge a premium for advertising given the direct attribution and likelihood of increased conversions.”

Snapcash
Snapchat promises to make it fast and easy for users to send payments to other users. To do so, users must first enter a debit card, with the information stored by Square. To send a payment, users swipe into chat, tap the dollar sign, enter an amount and tap the green button.

Square processes the payment and sends cash directly to the recipient’s bank account.

As of right now, Snapcash is available to Snapchat users in the United States who have a debit card and are 18 or older.

Snapcash gives millennials a quick-and-easy way to pay each other

A growing trend
Messaging apps offering P2P payments is a growing trend, with Facebook’s Messenger app reportedly working on such a service.

One reason messaging apps are eyeing P2P payments is because users of both types of services are heavily skewed toward millennials.

Recent data from 451 Research’s 2014 US Consumer Survey, September, shows one in five 18-24-year-olds have made a mobile P2P payment in the last three months, with that figure jumping to one in four for 25-34-year-olds.

Snapchat is popular with millennials

For those over 35, mobile P2P usage plummets drastically to one in 10.

However, the demographics could also work against Snapchat here, as a lot of the consumers this effort is targeting may not have a bank account or credit card.

Consumer trust
Snapchat will face other challenges as well.

Perhaps one of the biggest will be the need to convince users their sensitive financial information is safe.

“The challenge will be in convincing users to entrust Snapchat with their financial information and viewing the app as a viable channel for conducting transactions,” Mr. McKee said. “While all payment processes will be handled by Square, perception is everything, and Snapchat’s security record is far from pristine.”

It is also not clear that Snapchat’s positioning as offering self-destructing messages has much of tie-in with payments or commerce.

Snapchat has been attracting the attention of marketers of late.

For example, Macy’s is offering a first look at some of its Black Friday specials via Snapchat while Marriott is rolling out an interactive series on the app as part of its big mobile push (see story).

“I fully expect to see most of the social platforms trying to engage in some kind of peer-to-peer offering to stay relevant with the mobile payments wave that has been unleashed upon the tech community,” said Nathalie Reinelt, industry analyst at Aite Group, Phoenix, AZ.

“Offering a mobile payment or P2P solution isn’t difficult, the real test will be whether or not any of these companies can report respectable adoption rates, and moreover, consistent usage from those who have signed up for their services,” she said.

Final Take
Chantal Tode is senior editor on Mobile Commerce Daily, New York