March 19, 2015
I’ve been an advocate of Facebook getting into payments for a long time. Back then, skeptics would argue that Facebook had tried and failed (remember Facebook credits?), so Facebook would never again foray into the world of payments. Yet here we are today, with Facebook announcing its Pay feature in the Facebook Messenger app.
The ability to pay in a messaging app is not new. In China, Tencent’s hugely popular app, WeChat has incorporated payments directly into the app, making it a much-preferred choice for mobile payments. In South East Asia, South Asia and parts of Africa, payments using the feature phone’s SMS function have been the norm for years. The pay feature in a messaging app is however a first for the US…well, technically speaking, second. Snapchat beat everyone else to incorporate a payment feature in a messaging app.
Payments in a mobile based entity has existed for a long time. Payment Goliaths like PayPal have juxtaposed the payment feature on the smart phone for years, but PayPal is still a dedicated (singular function) payment app.
Payments have been and always will be all about behavior and never about technology. One of the basic human characteristics when two people meet is that they communicate. It’s why email took off the way it did and how instant messaging became popular. As people, we love to talk! The next logical evolution that took place was to communicate with more than just text. Herein we saw the mushrooming growth of video, audio, pictures, files as attachments, etc. - all packaged within the messaging app.
Extrapolate this behavior further, and now commerce takes place. The ability to exchange monetary value is what made wallets, and in particular mobile wallets, exponentially popular. Within the mobile space, we are still seeing crazy growth rates and will likely continue to experience this for years to come.
Facebook boasts over 1 billion active monthly users. This is huge any way you look at it. The Messenger app may have 500 million users, but don’t forget, Facebook also owns WhatsApp, an app that enjoys a much larger user base.
I had predicted that Facebook would be introducing the wallet concept once it goes lives with its payments feature. This is just a start. A lot many pundits will do a great job in explaining how the whole payment transaction on Messenger works, so I don’t delve into it here (a great review to read is Brian Roemmele’s article). I will however delve into where this might be heading and what competition Messenger payments will face.
The next rollout can be a coin-toss. Facebook will either bring the same payment mechanism on to WhatsApp or extend the market reach of Messenger to ‘low-hanging fruit’ markets like Canada, UK, Europe, Australia & New Zealand where it is licensed.
The zero fee option makes it really compelling for users to be able to pay each other without any fees. Facebook’s model is to earn revenue through interchange, i.e. when payments would be made at merchant locations (physical &/or virtual). Not to mention, the wallet deposits that their bank would be sitting on.
What’s surprising was Facebook going solo in this capability. Facebook’s current credit card processor, Adyen, was not invited to this party. Only time will tell what part Adyen will play as Facebook extends this out from debit cards to credit cards, and expands to Europe (where Adyen has a strong presence).
Payments are slowly morphing from cash to hybrid to digital payments. Likewise, the methods of payment are also morphing from person-to-person to peer-to-peer, with the former involving financial intermediaries and the latter without any financial intermediaries.
What would be interesting to see is how the Pay feature in Messenger will extend out to the millions of online Facebook Pages, who sure can use in-built payment features. One important aspect of Pay with Messenger is that Facebook is now deemed private by many people. Office colleagues, friends and family are often carefully selected before they are added as friends. With this distinction, I wonder how one pays someone who is close, but not on your friends list. Will the system still allow making payments to people who are not friends, but somehow can be added to Messenger?
What Facebook has that no other payment provider has (besides spending patterns) is access to your profile and the profiles on your friends list. A casual walk-through of patents assigned to Facebook will show you what sort of deep visibility Facebook has on a user’s behavior, from which they can very accurately determine things like household income, wealth of friends, things you Like, and using image analysis, determining what was it in the image that you like (i.e. deconstructing the meaning of the image). All this serves to facilitate more targeting of financial solutions to Facebook users.
The omni-market potential of anything Facebook payments enables is huge, from micro payments (don’t forget David Marcus came from Zong, so he fully comprehends micropayments) to macro. From online shopping to offline Pay with Messenger solutions, from domestic person-to-person payments to international remittances (person-to-person), even crypto currencies (they have a patent for that too!) are all in scope.
The Facebook ecosystem covers it all.
David Marcus did not come to Facebook, just to clone a Chinese experience (isn’t that a first?), or to merely equip Messenger and WhatsApp with a payments layer. No, the goal is much deeper. To be able to create a financial playground that spans the world, for starters, can be pretty darn intimidating though. The world’s Top 10 Banks with all their clients combined might not be able to compete with the billion+ active Facebook users, and it is this user base that Facebook intends to monetize.
In history, very few bank agnostic platforms have had such a reach. Certainly no one has the numbers that Facebook has, especially when you consider the user demographics (everyone uses it, it doesn’t have a barrier to entry). However, Marcus + team is going to ensure that they play their cards right.
And they are in no hurry!