Facebook is moving fast to allow users to send payments to each other. The answer will be essential in determining the winner of one of the hottest races in the tech industry: payments. Alongside Facebook, startups like Xiaomi and Venmo race giants like Apple and Google for the chance to connect their networks with the wallets of their users.
In the context of its rivals, Facebook’s new service is nothing unique. It will let users send money to Facebook friends through the Messenger app without any processing fee. It’s familiar to those who have used PayPal, Venmo and other payments services that grease online commerce. Facebook’s bet is that the Messenger app, with its comprehensive lists of friends and family, will make it appealing to users to send money.
Facebook has been plotting the move for many months. Mark Zuckerberg, Facebook’s cofounder and CEO, talked up the potential of getting into peer-to-peer payments during an earnings call in July: “The payments piece will be a part of what will help drive the overall success and help people share with each other and interact with businesses. But we’re really focused on the interactions overall.”
The social network is as well-positioned as any business to own a chunk of the payment market and perhaps stake a claim to payments more broadly, thanks to its billions: a vast user base of 1.39 billion monthly active users and a cash hoard of $11 billion. However, Facebook’s mixed track record with payments and the struggles of its competitors show that its success in this space is anything but a foregone conclusion.
Facebook could eventually generate revenue directly from this effort by charging for the payments option or indirectly by getting more credit and debit cards on file, but analysts we spoke with believe the revenue is secondary for the Internet giant. Whether the goal is to generate revenue or simply establish a firmer grip on users, Facebook must now vie against businesses like Venmo and Square, which have been pushing free peer-to-peer payments solutions for years.
The problem with payments is that they’re rarely secure enough to prevent identity thieves from finding ways to steal the financial information of users. Apple Pay, which muscled into the market with the eager support of major retailers, has come under fire for its vulnerability to fraud. Venmo also recently suffered through a wave of critical press coverage questioning its security measures, or lack thereof.
The larger businesses entering the space may be able to eat the cost longer, but that doesn’t guarantee widespread adoption. Amazon, for example, nixed its beta mobile wallet application after just six months and Google essentially had to make a big acquisition to reboot its stalled mobile payment efforts.
Just about the only thing you can say with certainty, according to McKee, is that “a shakeout in the mobile payments space should be expected.” Read more…