Facebook's Foray into Payments: Revolutionary or More of the Same?
To merchants, the evolution of digital payments was supposed to be a “get out of jail” card that released them from the shackles of the current payment system. That dream could be reduced to the following proposition – the technology industry could conquer any industry. If anyone could disintermediate Visa and Mastercard and shake up payments, it would be Apple. Facebook, Google, Samsung, or some other tech company. Unfortunately, that has not happened. Rather than introduce new forms of payment and more options for merchants, tech companies have floundered in payments, offering digital wallets that do little more than pass through the underlying payment credentials without configuring new ways to pay.
Facebook, however, has been guarded about its plans in payments. Facebook’s approach is reminiscent to some degree of the years preceding the much ballyhooed, and ultimately overrated, launch of Apple Pay in October 2014. But will Facebook follow the other major technology companies and simply leverage the existing payment networks to facilitate payments? Or will it introduce a payments strategy that exploits the unprecedented scale and reach of the Facebook platform? With 2.2 billion users, an extensive ecosystem of digital commerce, and linkages to e-commerce sites around the world, Facebook could emerge as a meaningful competitor to Visa and Mastercard. In fact, it may be better positioned to disintermediate Visa and Mastercard than either Apple or Google. But will it attempt to do so?
These questions are impossible to answer but one thing is probably clear – the answers are intertwined with Facebook’s ongoing struggle to redefine itself to meet an increasing firestorm of regulatory challenges. After its business model left Facebook (and our democracy) exposed to Russian meddling, Facebook is facing hard choices over its advertising-driven model. It simply cannot continue to trade our privacy for advertising revenues and comfortably avoid regulatory scrutiny. Something has to change. Could Facebook create new revenue streams through payments, and use those revenues to reduce its dependence on advertising revenues? If the experience of China’s WeChat Pay is any indication, the answer could be yes. WeChat Pay has successfully integrated payments functionality into WeChat’s ubiquitous instant messaging service. The result has been a fabulously successful payments service that has benefited both consumers and merchants in China, offering them simplicity, efficiency and lower costs. For some time, there has been talk of WeChat Pay coming to the United States to cater to Chinese tourists. What is new, however, is the possibility that Facebook, leveraging its WhatApp platform, could offer something similar to WeChat Pay in the U.S. If it did that by offering payment options, such as ACH or new forms of credit, beyond simply riding the Visa/Mastercard/American Express rails, merchants and consumers in the U.S might finally see innovation via digital payments.
Facebook is also examining a blockchain-based digital currency, which might be even more game changing in the long run. The direction of this initiative is even harder to predict. That noted, Facebook is probably looking to develop a proprietary currency for use within its ecosystem. That could offer an intriguing new option to merchants operating on Facebook. But the power of that to revolutionize payments could be fully realized if the Facebook currency were integrated into a Facebook wallet operating like the WeChat Pay model. While Facebook must first launch a viable digital currency before executing that strategy, the prospect of a digital wallet empowered by truly new forms of payment is nothing short of tantalizing. We will be watching this carefully as Facebook, finally, comes forward with its payment strategy.