Can Facebook Inc Compete in Mobile Payments?

Facebook is in talks to roll out a mobile payments product. Can it best the competition?

Apr 14, 2014 at 7:30PM

Facebook (NASDAQ:FB) has been looking for ways to diversify its revenue. The social network snatched up WhatsApp and Oculus Rift over the last couple months. Now, the company is reportedly in talks with the Central Bank of Ireland and three London-based start-ups that offer e-payment services.

E-payments is an area of interest for many big name tech companies. eBay (NASDAQ:EBAY) is the market leader with PayPal, but it recently acquired BrainTree and its Venmo app for better mobile payments. Google (NASDAQ:GOOGL) has toiled around in e-payments for some time, but its services haven't attracted a large audience. Additionally, Apple (NASDAQ:AAPL) is expected to try its hand at mobile payments at some point.

Facebook, however, may be able to execute better than any of them.

Peer-to-peer payments
eBay's PayPal was originally founded as a way to send money to friends and family through your Palm Pilot's infrared port. (Remember those?) It was quickly adopted as an online payments platform, and became the preferred method of payment for eBay purchases. Now, it's widely used by businesses.

At the same time, however, there's a growing demand for peer-to-peer payments. Venmo, a leading peer-to-peer payments platform, has consistently ranked in the top 10 of the finance category of the Google and Apple app stores. The eBay-owned app is used for anything from splitting checks to paying rent.

Facebook could easily copy Venmo's success. It doesn't really have to reinvent the wheel, Venmo doesn't, it just needs to ease the friction and pain points.

The first is signing up for a new service; with Facebook's scale of 945 million mobile monthly active users, it vastly outsizes PayPal's 143 million active accounts. Venmo won't be able to compete with that. Second, is entering payment information. Facebook already has a head start on this with its payments platform for game developers.

Big scale competition
Google has been in the e-payment market for a while with its Google Wallet service, but has largely failed to attract an audience. Its approach may be to blame, as it rolled out a consumer-to-business product very similar to PayPal. At that point PayPal was so ingrained as the online payments processor, that it was hard to compete.

When it extended Google Wallet to mobile, the product didn't solve anything people had a problem with. By the time it added money transfers to GMail last year, people had found better solutions like Venmo.

Apple, on the other hand, may pose a significant threat to eBay and a potential Facebook entrant. It has both scale and credit card information. As of its last update, nearly a year ago now, Apple has over 575 million credit cards on file through iTunes. It could have reached 700 million by now.

Apple's payment platform plans, however, appear more focused on retailers than peer-to-peer payments. Apple hopes to proliferate the use of iOS devices in retail locations through its iBeacon platform as well as its potential payments platform -- increasing sales of its high-margin hardware.

PayPal, similarly, is focused on retailers. It's partnered with several large national chains to bring PayPal in stores, and it released its own beacon device last fall. Although PayPal is a more popular app than Venmo, the two accomplish very different goals these days. The former connects consumers with merchants; the latter connects friends with each other.

Can Facebook beat the competition?
There's certainly an opportunity for Facebook to become a preferred payments platform. It has unmatched scale, and can capitalize on the social aspect that has made Venmo a success. Where other big name competitors are going after the retail business, Facebook may be able to dominate the peer-to-peer payment niche.

The company could capitalize on its mobile dominance by providing a mobile payments platform for online retail, an area of focus for Venmo's parent company BrainTree. With Facebook's strong relationships with mobile developers, and its lack of competition with other retailers (unlike eBay) it could develop a strong presence in mobile checkout as well.

Facebook's biggest competition would likely be Apple, which also has a large mobile presence and could do very well in providing a mobile checkout solution. There's lots of room for competition, though. Gartner expects mobile payments to grow to $721 billion by 2017.

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Jun 12, 2015 at 5:01PM

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