How Sending Money on Facebook Works

Since Facebook, Inc. (NASDAQ: FB) launched in 2004, its features have expanded significantly. The vision of its founder, Mark Zuckerberg, began as a way to take the social dynamics of a college campus and put them online. In the site's beginning, students at a small number of elite colleges made profiles consisting of pictures and whatever additional information about themselves they chose to give, and then linked them with their friends' profiles; hence the term social network. In fact, only students with verified email addresses from a list of approved colleges could sign up for Facebook during the early years. Moreover, the site was not monetized; its only funding came from venture capitalists who saw the potential for big returns if the concept caught on nationwide.

As of 2015, Facebook has become much more than an online playground for Ivy League college students. The site has 1.5 billion monthly active users, which is greater than one-fifth of the world's population. For the first quarter of 2015, Facebook earned over $3.3 billion selling online ads. Businesses and entrepreneurs pay to have their promotional messages appear on users' news feeds. Only Google makes more money selling ad space online.

Facebook is also making it possible to send money to friends and business associates through the site with a few clicks of the mouse or taps of the screen. Throughout 2015, it is rolling out a payment feature as part of Facebook Messenger, the site's instant messaging component. This should worry executives at PayPal, long considered the dominant player in that niche. In fact, PayPal's former CEO, David Marcus, defected to Facebook in 2014 to oversee Facebook Messenger. With as much time as people spend on Facebook, it logically follows for users to take advantage of this new feature once they learn about it.

The site is making the process of sending and receiving money online simple for anyone with a Visa or MasterCard debit card. With this service, Facebook acts as a conduit between your bank and your friend's bank, channeling the money from one to the other.

Sending money via Facebook Messenger is simple. It takes only seconds once you store your debit card information, which you are prompted to do on your first use of the feature. The first step is to open a new or existing Facebook Messenger conversation with the friend to whom you wish to send money. You can do this on your home computer, tablet or smartphone. Once you pull up the conversation, you should see an icon with a dollar sign at the bottom of your screen. Tap or click that icon. The app then prompts you to enter the amount of money you wish to send; do this and then click or tap the Next button.

At this point, if it is your first time sending money via Facebook, a screen pops up asking you to enter your debit card information. As of September 2015, the service accepts only debit cards, not credit cards, and your card must be a Visa or MasterCard. Enter your card number, expiration date, validation code on the back of the card and billing zip code. Next, click or tap the Pay button.

The process is now complete. The app transfers the funds to your friend right away. If you use an online banking app, you should see the money removed from your available balance within minutes. Facebook stores your debit card information, so you do not have to enter it each time you wish to send money via Facebook Messenger. For those concerned with having financial information stored on a third-party server, Facebook provides an information page where you can read about its security protocols. The site claims to use multiple layers of hardware and software protection on its servers.

Receiving money via Facebook Messenger is even easier than sending it. When a friend sends you money, you receive a Facebook notification, similar to what you receive when a friend sends a regular message. If your debit card information is already stored in the app, there is no action that must be taken on your end. The money is transferred instantly; the notification simply lets you know it is on the way.

When a friend sends you money via Facebook and you have yet to provide your debit card info, the notification you receive upon payment from your friend includes an Add Card button. Tap or click it, and the same prompt appears to enter your card information as when you send money for the first time. Once you submit this information, the app completes the transaction. When you send or receive money in the future, your card is already stored, and you do not have to enter it again.

Though the money is transferred instantly, it may, depending on your bank, take a day or longer to appear in your available balance. Different banks maintain different hold time rules for electronic deposits.

Facebook imposes no charge to send or receive money via Facebook Messenger. The company makes no money directly with this feature. The financial incentive to provide this service is it encourages users to store their debit card information on the site. This opens Facebook to a world of monetization options, many of which it is already considering.

In the near future, Facebook users might see a Buy Now button, similar to what you see on Amazon, next to advertised products that show up in its news feeds. Those users who took advantage of Facebook's send and receive money feature, and thus have their debit card information stored on the site, can buy the advertised product with a single click of the mouse or tap of the screen. Impulse buying becomes easier and much more tempting when users do not have to fish their debit cards from their wallets and enter payment information for every purchase. In this regard, Facebook stands to make a lot of money, albeit indirectly, from its send and receive money feature.