You Should Be Nervous If Facebook Tried to Tackle Mobile Payments

Source: Flickr / Sean MacEntee.

Many have suggested the payments industry is poised for change, and Facebook (NASDAQ: FB  ) appears to be another technology behemoth aiming to join the fray. And while innovation and expansion are often good thing, this news should actually be a cause of concern for investors.

Source: Flickr / melenita2012.

The reported expansion
Media outlets everywhere are reporting Facebook is "weeks away" from receiving approval from the Irish regulatory body that will provide its users the ability to save money on Facebook and in turn send that money to merchants and friends.  

This has caused many to immediately think of the PayPal unit of eBay (NASDAQ: EBAY  ) and Google (NASDAQ: GOOG  ) , both of which are like Facebook in that they're California technology titans preparing to become dominant forces in the mobile payment landscape.

The major changes
The reason behind the expansion by Facebook is understandable. eBay has seen PayPal grow its mobile payments from $750 million in 2010 to a staggering $27 billion in 2013, and reported a staggering $8.8 billion in the fourth quarter alone. And this wasn't simply the result of people buying things from eBay through PayPal on their mobile devices, as nearly half of the payments were done outside of eBay. 

Similarly, Google has been aggressively expanding into the payments industry as well through Google Wallet. It allows for individuals to send money to both stores and friends through their phones, but also has a physical card to use in stores that don't. It even lets individuals store loyalty cards and receive deals from merchants.

Yet there is one critical distinction between Facebook and the others that may ultimately result in its failure.

The concern from consumers
McKinsey, a consultancy, recently released the results from its Mobile Payments Consumer Panel in which it surveyed 1,000 individuals across the U.S. surrounding their opinions on mobile payments. The firm noted: 

There has been buzz about the promise of mobile wallets for several years now. Yet, despite the launch (and relaunch) of dozens of applications with various added benefits beyond simply "paying with your phone," consumers are not yet broadly using these applications, and they are certainly not leaving their physical wallets at home.

There were many reasons behind this, and part of the reason was the immensely fragmented mobile payment industry itself. After all, some merchants may allow for the Google Wallet, others PayPal, and some will take neither.

But perhaps as a glimmer for optimism for Facebook is that consumers ranked access to deals and offers behind only convenience as the most important features of mobile payments. With likes and trends and all sorts of consumer information at the hands of Facebook, a mobile payment solution could provide this perfectly.

Yet the study continued by noting, "privacy remains a concern -- 68% of consumers would withhold personal information even if it means losing out on tailored offers."

Source: Flickr / Robert Scoble.

The reason for Facebook to fear
It should come as a surprise to no one that Facebook has always dealt with concerns from its users surrounding it privacy.

But those concerns have only intensified in recent years.

Last week the Federal Trade Commission sent a letter to Facebook ensuring if changes were made to the way customer data is collected -- which Facebook is known to do -- on WhatsApp, users would be made aware.

The letter noted: 

WhatsApp has made a number of promises about the limited nature of the data it collects, maintains, and shares with third parties – promises that exceed the protections currently promised to Facebook users. We want to make clear that, regardless of the acquisition, WhatsApp must continue to honor these promises to consumers.

And in September the FTC raised questions about whether changes to Facebook's privacy policy violated an agreement made in 2011.

All of this is to say, if consumers are hesitant to adopt mobile payments as a result of privacy concerns, that problem would only be exacerbated if Facebook was the end mechanism.

The key takeaway
People understand eBay and PayPal at their core are involved in commerce, so they trust making payments on it. And while the same isn't true of Google, its less used social network capabilities could in fact be a benefit toward it in the payments landscape.

It is too early to tell what the motivation and investment from Facebook will be in the mobile payments space, but one has too think this could be a move in which it is only setting itself up for failure.

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  • Report this Comment On April 20, 2014, at 4:01 PM, tradingforfools wrote:

    do you know if there will be a cost to the user? Will this take the place of a Western Union usage to send money nationally and internationally?

  • Report this Comment On April 20, 2014, at 10:46 PM, PhilipCohen wrote:

    "You Should Be Nervous If Facebook Tried to Tackle Mobile Payments"


    But then no more nervous than eBay’s “PreyPal” trying to tackle any form of payments.

    PayPal: “The [un]safe way to pay and be paid” …

    “How to complain about PayPal in the UK”

    On this article, when I last looked, 410 negative readers’ comments on “PreyPal”—well worth a read for any small merchant using, or thinking of using, “PreyPal” to accept payments and who has not as yet had a problem with “PreyPal” because, when you do eventually have that problem, it could be a serious business-threatening problem …

    “PayPal: 'Aggressive changes' coming to frozen funds policy”

    Of the 368 readers’ comments currently on this article, see if you can find any that are complimentary of “PreyPal” …

    And, just for fun, a story from Anna Tims of the Guardian/Observer detailing an apparent systems failure at “PreyPal” that undoubtedly affected who knows how many people …

    And another story from Anna Tims demonstrating eBay's unconscionable lack of fair transaction mediation and hard-wired bias towards buyers; 324 readers’ comments on this story; see if you can find any that are complimentary of eBay ...

    “eBay Seller Caught in the Middle of PayPal Dispute”—

    This story is the classic demonstration of just how unprofessional and “clunky” PreyPal is and always will be because “PreyPal” is little more than a credit card merchant account operator (with Wells Fargo Bank); an extra layer of clunky middleman operating in between the seller’s PayPal “pretend bank” merchant account and the buyer’s source of funds.

    And yet another interesting article in the Guardian on the lack of security and protection for sellers receiving payments via eBay’s clunky “PreyPal” (or dealing with Bitcoins); note the many negative readers’ comments about “PreyPal”.

    And, while we are at it, an independent view on Bitcoin …

    “Anyone rushing out to load PayPal onto their phone might want to stop and read The New York Times Haggler column from Sunday. PayPal apparently generates a huge percentage of The Haggler’s traffic.”—Tom Groenfeldt, Forbes …

    “If PayPal isn’t the most reviled online company in the country, which is? The Haggler invites reader suggestions for this unhappy title, but before you write in, consider the sheer quantity of animosity that PayPal inspires. There are anti-PayPal Facebook sites, anti-PayPal YouTube tirades, PayPal-loathing Twitter accounts and more than 550 complaints about PayPal on”

    Yet another classic, ugly, PayPal story …

    Clunkity, clunk, clunk, clunk …

    And (yet) another negative “PreyPal” story; an oldie but well worth a read …

    “PayPal (Owned by eBay) is symptomatic of the Achilles heel of online commercial ventures today that leave users in distressed states of helplessness. An innocent trust given in good faith by a user is not reflected back by the service provider, in fact it is abused and taken advantage of.” …


    And another quite typical “PreyPal” horror story, ultimately “fixed” …

    “… I know it is child's play to get creative with a graphics program and manufacture what may apparently look like a utility bill with someone's name on it. Not that I would do such a thing which probably breaks all sorts of anti-terrorism laws and would subject the perpetrator to drone bombings and/or water-boarding. You know things have gotten out of hand when honest people have to lie just to get around the impossible [PayPal] bureaucracy.”

    “How to sue eBay or PayPal [in the U.K.]”

    “Your Legal Solution To PayPal's 21-Day Hold Policy [in the U.S.]”

    The reality is, if you have not yet been burnt by “PreyPal”, then your turn is coming, and being burnt by “PreyPal” can be a serious business-threatening situation. PayPal’s close association with the “wild west” eBay marketplace has destroyed any credibility “PreyPal” may ever have had with many merchants and frankly, I think that anyone that thinks that “PreyPal” now has any long term future outside of the eBay marketplace or as the merchant account provider “of last resort” for non-professional sellers, is uninformed as to just how unprofessional the clunky “PreyPal” operation really is when compared to the retail banks’ MasterCard/Visa operations and the new “MasterPass” and “” offerings …

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Patrick Morris

After a few stints in banking and corporate finance, Patrick joined the Motley Fool as a writer covering the financial sector. He's scaled back his everyday writing a bit, but he's always happy to opine on the latest headline news surrounding Berkshire Hathaway, Warren Buffett and all things personal finance.

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