On Facebook Pay
On November 12, 2019, Facebook announced on its official newsroom blog that it is introducing Facebook Pay. The social network claims that the new service will provide users with a convenient and secure payment experience that can be used across different platforms owned by the company, from Facebook, Messenger, Instagram, to WhatsApp. Users can also shop, donate to causes and send money to each other. The key selling point highlighted in the article is the ability to manage payment methods in one place and to choose set up Facebook Pay application by application.
Why payment?
This initiative is a logical choice made by Facebook and there is a clear benefit that the company can earn through this initiative – get more user data. Financial services are a way to get closer to users and collect valuable data that shows a wealth of information about users’ behaviors. Facebook is not alone in push into finance. Apple introduced a credit card in August 2019, Uber offers bank accounts with special perks to its drivers, and Google announced that it will offer checking accounts to consumers.
Rough road ahead
There are foreseeable barriers that Facebook will face as it launches the payment service. First, it is very hard to generate profit from payment services. Facebook Pay is supported in partnership with other major credit and debit card-issuing banks as well as other financial technology companies like Visa, PayPal or Stripe. The challenge is that margins are incredibly tight with these partnerships in place, as Facebook needs to pay interchange fees and various assessment charges to the banks and partners. Facebook can choose to build credit card network from scratch, but that calls for a whole new set of challenges, such as distributing a means of accepting payments to merchants and a means of making payments to consumers. Raising the fee charged to merchants seem also unlikely as the competition in the space is fierce and the users have a load of other alternatives.
The second barrier is negative public sentiment towards Facebook. Ever since the Facebook-Cambridge Analytica data scandal, consumers became wary of the social network selling data to advertisers. According to Forrester, “consumers do not trust Facebook for digital payments. Only 5% of US adults say they would trust Facebook to provide digital payment services. That is well below the likes of Amazon, Apple, Google, and others.”
The last barrier is simply the nature of the financial service business. As mentioned above, Facebook will have to partner with banks and financial institutions to offer financial services. Financial service is highly competitive and challenging market, one that requires a different skill set from what Facebook is good at – social media and advertisement.
Creating an organization that supports the initiative
So far, the company seems dedicated to the new initiative, starting from the very top. Mark Zuckerberg expressed excitement for the new payment initiative in Q2 2019 earnings call. He said that “commerce and payments are huge and important space” and that payments is part that he is particularly excited about.
“Payments is part of this that I’m particularly excited about. When I look at the kinds of private interactions we can make easier, payments may be the most important for the long term. We’re continuing to test payments on WhatsApp in India, and are close to launching in other countries as well. In the future, we’ll enable people to use the same payments account to send money to friends and businesses on WhatsApp, shop on Instagram, or make transactions on Facebook. Being able to send money as easily as you can send a photo will open up new opportunities for businesses.”
Facebook’s organizational supports the company’s push for the new initiative. The newsroom post that announced the launch of payment service was written by Deborah Liu, Vice President of Marketplace & Commerce. According to her LinkedIn profile, Liu has over 17 years of experience in technology industry and had a successful career, especially at Facebook. She joined Facebook in 2009, rising to Vice President of Platform & Marketplace in 2014 and then to head Marketplace & Commerce. Deborah Liu is reported to be part of Facebook’s “M-team”, a small group of executives that Zuckerberg routinely turns to for counsel. Liu reports to Fidji Simo, Head of Facebook App.
In order to increase the odds of success for the new payment services, Facebook should give more autonomy to Marketplace & Commerce team. More than 98% of Facebook’s revenue comes from advertising. In 2018, Facebook made $55 billion from advertising making $825 million revenue from payments and other fees seems meager. There will be questions, both from inside and outside of the company, whether Facebook can justify the resources and costs to sustain the new payment service when the promise for revenue seems slim and the only benefit to be gained is user data. The team responsible for the payment service should be granted some distance from these questions to be able to focus on the success of the initiative.