In the last five years, technology has moved in a direction that now has experts believing that the way we process payments is about to drastically change. Visa (NYSE: V ) has been at the forefront of payment solutions for decades, now operating in more than 200 countries. In its last quarter, it processed more than $16.7 billion worth of transactions. While technologies used by the likes of Visa are likely to remain in your wallet, Facebook (NASDAQ: FB ) and BlackBerry (NASDAQ: BBRY ) might hold clues as to how you'll be making payments in the decades ahead.
It's no surprise
According to the research and analysis firm BI Intelligence, mobile payments will soar to more than $400 billion in the U.S. over the next four years.
By 2018, U.S. mobile payments for in-store purchases could grow by $180 billion -- and another $100 billion for Internet purchases. Therefore, we're talking about one of the fastest-growing industries in the market. And what's fascinating is that these numbers don't account for the growth opportunities that exist throughout the globe; those where smartphone penetration remains high.
Mobile payment processing
We've already seen drastic changes in the payment processing industry in recent years, many of which have occurred on mobile devices. Most notably, PayPal has taken the payment processing industry by storm, and with 20% of eBay's (NASDAQ: EBAY ) $62 billion in total enabled commerce volume during its second quarter coming from mobile, PayPal has quickly grown into a service of choice on mobile devices.
Then there are other services used on mobile devices, like Square. And of course Visa remains relevant even on smartphones for processing payments. Not to mention there are new "digital currencies" like Bitcoin that have sparked consumers' interest -- those that apparently seem created for mobile and Internet payments. Yet surprisingly, these services and others alike are unlikely the method of payment that you will be using most often on your mobile devices in the years ahead.
How will you pay?
Instead, you'll likely find yourself making payments via text message, possibly from a slew of different text-messaging services from different companies.
In BlackBerry's most recent earnings conference call, CEO John Chen first put this concept in play by calling mobile payments "the next big thing" while discussing plans for BlackBerry Messenger, or BBM, as a tool for per-transaction payments.
BBM remains one of BlackBerry's more popular tools, with a large enterprise clientele and a growing presence, yet questions of monetization have often been asked. Chen shed some light on a business plan that mimics the popular PayPal, and noted that the messaging service should have 100 million users by the end of the year.
In theory, this large number of users -- both consumers and enterprise clients -- would be able to transfer, purchase, or exchange currency with a person or business on the other end of a text message. The idea of such a service has investors very excited, and also realizing the value that lies in having an enormous network of users on a particular platform.
The largest network gets involved
With that said, Facebook looks poised to dominate this space, perhaps the next generation's Visa. Recently, the company hired ex-PayPal chief David Marcus to head its messaging products, which at the time seemed rather strange given the disconnect between messaging and payments. Today, the connection seems to be growing clearer, and the opportunity even larger.
Facebook's Messenger application boasts an impressive 200 million-plus monthly active users, or MAUs, and the company has already confirmed that the application will overlap with payments, most likely with a peer-to-peer format where Facebook receives a fee, much like BlackBerry's BBM.
As a result, Facebook is already trying to get users accustomed to Messenger, and announced last Monday that it'll force all users to download Messenger in order to receive direct messages. While Facebook users might be used to receiving such messages on its main platform, Messenger's higher engagement rates and speedy send-and-receive times have provoked this change, as have the mobile payments initiatives. Facebook has the opportunity to significantly grow the Messenger application, which will be crucial in determining the success of its payment processing business.
Furthermore, Facebook's plan with mobile payments via text helps to explain the seemingly ridiculous $19 billion price tag of WhatsApp, as it has more than 500 million users who are primarily located outside the U.S.
Mobile messaging applications are growing fast, much quicker than social media platforms, and it's now clear that companies are ready to monetize this growth. Facebook might be the first company to have an all-out global payment processing business via mobile messaging.
The real value in Facebook's strategy with mobile messaging lies in its enormous platform, and the fact that it could connect the world not only socially, but also financially.
While most of the company's plan remains unknown, we have received confirmation from both BlackBerry and Facebook that a per-transaction fee will most likely be prevalent.
For reference, PayPal generated $1.74 billion in revenue, with growth of 20%, on only 152 million total users with a per-transaction fee model. If using an identical model with many times more users, Facebook's current business could easily double with payment processing. In other words, payment processing on mobile could be a game-changer for Facebook, and a lifestyle change for consumers.
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