The Long Road to Facebook ePayments

Facebook may be thinking of getting into the digital payments market, but not for a long time. Sure, Facebook has its payments business that helps game developers monetize their online games, but that's not what I'm talking about. I'm talking about e-payments, where users can send money directly to one another, or to a retailer.

Entering e-payments would put it in direct competition with eBay's PayPal and, to a lesser degree, Apple Pay and Amazon . Similar to Apple, though, Facebook is taking a set-by-step approach to making payments a potential reality. On Facebook's second-quarter conference call, Mark Zuckerberg noted he's thinking in years, not months.

Why that "buy button" is a big deal
This summer, Facebook began experimenting with a buy button that appears within ads, allowing Facebook users to buy goods directly from their Newsfeeds. These ad units carry a premium over typical display ads, considering they reduce the amount of friction between seeing an ad and completing a transaction.

Source: Facebook.

Facebook gains a few very valuable assets every time someone clicks the buy button on one of those ads. First, it gets user feedback on the kinds of products that person is interested in. It can feed that back into its targeting algorithm. Second, and more importantly, it gets a credit card number.

The sheer number of credit card numbers Apple has on file was the biggest reason people expected the company to move into payments. Indeed, the more credit card numbers you have on file, the easier it is to move into providing transaction processing for other websites. Each new credit card Facebook captures moves it one step closer

Facebook already has a few credit cards on file from its in-game payments platform, as well as several other consumer-facing initiatives. If the social-commerce angle pays off, Facebook could have a very nice collection of credit cards within the next couple of years.

David Marcus Source: Facebook.

Splitting off Messenger
Another move Facebook made this summer was moving Facebook users to its stand-alone Facebook Messenger app. It also hired former PayPal President David Marcus to head up Messenger.

On the second-quarter conference call, Zuckerberg told analysts that he expects payments and Messenger/WhatsApp to "overlap" at some point. That may have been part of the reasoning behind hiring Marcus.

Splitting off Messenger sets up Facebook to more easily integrate payments into the platform instead of trying to squeeze it into an already bloated flagship platform. A peer-to-peer payments platform integrated with Messenger and WhatsApp would go head to head with Venmo -- a popular app made by Braintree (owned by PayPal).

One more piece of groundwork
One thing that Facebook has had a lot of success with is its "log-in with Facebook" feature. The service allows users to connect accounts on other sites to their Facebook accounts, which saves them from remembering yet another username and password. For website owners, it increases the number of people who sign up and log in, and can give them some extra data on their users. In some cases, it gives websites the ability to share information via their users' Facebook profiles.

If you put "log-in with Facebook" together with a bunch of credit card numbers, you get "log-in and pay with Facebook." The result could look a lot like Amazon's "log-in and pay with Amazon." Unlike Amazon, however, Facebook won't be competing with other online retailers. In fact, Facebook would likely be more than happy to share data with retail partners to help them advertise on its platform.

PayPal's plans to go independent from eBay make it a much more formidable competitor, because retailers know PayPal revenue isn't going directly to fund one of their biggest competitors in eBay. But Apple may have a huge advantage with Apple Pay on mobile. Eighty percent of time spent on e-commerce via mobile is through apps, where Apple Pay makes authorizing a secure payment entirely too easy to prevent impulse purchases.

A long road ahead
Facebook has some issues to overcome, as well. Mainly, a lot of people don't trust the company with their private data -- and few things are more private than payment information.

Apple made it clear in its Apple Pay presentation that it doesn't collect any information on its users. I doubt the same would be true for Facebook, whose lifeblood is data. And people hate advertising, especially the major creep factor of seeing an ad that seems personally aimed at them. (Honestly, I'd rather see well-targeted ads rather than untargeted ads, but that's just me.)

Still, even if only 10% of Facebook's 1.32 billion users actually give Facebook their credit card information and use it to process payments, it would quickly rival PayPal's 152 million active accounts. Again, this is a long way down the road, but there's a clear path for Facebook in payments, and a lot of groundwork is already laid.

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