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2 Big Benefits of Facebook's New Payments Platform

By Adam Levy - Nov 15, 2019 at 12:00PM

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Facebook Pay allows users to pay friends and businesses across all of the social giant's apps.

Facebook ( FB -4.27% ) has made several new products focused on shopping over the last couple years. Facebook Marketplace is increasingly popular, and Instagram is practically a shopping app now.

Now, Facebook is taking another step forward with the introduction of Facebook Pay. Facebook Pay enables users to set up payment information in one of its apps, and use the same information across the family of apps to send money to friends or pay for goods and services.

Facebook has dabbled in payments before. It offered the ability to send money to friends through Messenger in the U.S., and it's working on peer-to-peer payments through WhatsApp in India. Facebook Pay represents a complete overhaul of payments, using a single platform for the service across the family of apps. It should improve commerce on Facebook's family of apps in two ways: by decreasing the amount of friction between discovery and purchase and by providing better advertising data for marketers.

Three smartphones displaying screenshots depicting the use of Facebook Pay in Messenger.

An example of the user flow in Messenger. Image source: Facebook.

Increasing social commerce

Making it easier for users to buy stuff straight from Facebook or Instagram is a challenge Facebook is working to solve. Earlier this year, it introduced Instagram Checkout, which enables users to buy products on Instagram instead of redirecting consumers to a merchant's website. 

Facebook Pay represents another way to reduce friction in the social shopping experience. If a user sets up Facebook Pay after they find an item with Instagram Checkout, for example, they may be more likely to complete a purchase through Facebook Marketplace by sending money through Messenger. It could also enable businesses, using Messenger and WhatsApp to communicate with customers and potential customers, to increase their sales through those channels.

If Facebook can effectively increase sales for businesses on its various apps with Facebook Pay, it doesn't need to worry about monetizing the service directly. In effect, it increases the value for merchants to establish a presence across its apps and spend more money on advertising.

Speaking of advertising

Facebook Pay isn't just making transactions easier on it the tech giant's various platforms, it's also going to gain valuable data. Facebook will collect "payment method, transaction date, billing, shipping and contact details," the company disclosed. It will use that data to increase ad relevance across its apps.

Access to shopping data can be extremely valuable. Amazon ( AMZN -1.81% ) has quickly built a $14 billion advertising business on the back of its shopper data. Not only do purchase decisions give Facebook a better signal as to what its users are interested in, but purchase data also provides better feedback to marketers as to how well their advertisements work.

Facebook is continually improving its measurement capabilities, but being able to close the loop from ad impression to purchase all within its ecosystem provides the most accurate measurement possible. That's one of the draws of Amazon for advertisers: There's a direct link between ad clicks and sales.

Using Facebook Pay to track those sales could improve measurement across Facebook's family of apps. Facebook can more easily track users from an initial ad impression on News Feed, to engagement with a business on Messenger, to purchasing the item through Instagram Checkout after seeing another ad -- or any permutation of interaction and payment across its apps. As Facebook integrates its family of apps more closely with a unified messaging backend, measurement will continue to improve.

Facebook Pay is just the first step for Facebook to increase commerce on its platform through reduced friction and better ad-targeting data. That should result in continued increases in average ad prices, which have been offset by a shift to Stories ads lately. Even as Facebook has managed to increase total ad impressions, even in News Feed, increasing the value of its ads is still its best path for long-term revenue growth.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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