You can't accuse Facebook (NASDAQ:FB) of just resting on its laurels, the company just confirmed yet another new product, this time a mobile payment service. In a report from AllThingsD, the company confirmed that it was preparing to test a mobile payment service that allows purchases to be made with just a Facebook login. This isn't the first time Facebook has tried to get a slice of e-commerce, but this one is designed to ease mobile transactions unlike their previous Credits system. Their ill-fated first attempt was shut down primarily because the namesake secondary currency complicated things.
What difference can mobile payments make?
The newest iteration, if successful, could significantly improve their ad service, giving the company precious insight into our buying habits. As it stands, advertising revenue accounts for 88% of total revenue for the company, according to their most recent earnings release. Improving the efficacy of advertising with shopping data could have a tremendous effect on the company's revenues. As of June 30, the company reported 819 million mobile monthly active users, just convincing a fraction of them to use their payment system could be a big coup. And if the company decides they then want to join the payment processing business it has the potential to become a major source of revenue.
While the company has been clear to say they are not entering eBay's (NASDAQ:EBAY) turf with this test run of the service, it isn't a stretch to think they might at some point in the future. eBay's PayPal unit is a major source of revenue for the company and commands a massive amount of processing traffic. In their most recent quarterly earnings release, PayPal brought in $1.6 billion of the company's $3.9 billion in revenue. It is hard to ignore the lure of such a lucrative market, particularly if Facebook's user base gets used to letting Facebook handle their sensitive financial data.
Can Facebook Pull It Off?
Convincing the user base might be the company's biggest hurdle. As it is the social giant doesn't have a shining security track record and it isn't clear that the user base will trust it with their credit card numbers and purchase histories. Hard to imagine that the company that made its name on people over sharing would have trouble convincing them to share, but when it comes to financial matters incumbency matters.
Even if Facebook doesn't venture into the payment processing business, the company still can gain tremendously from data it can glean from the payment service. Given the number of choices available in today's market, user data has become the biggest differentiator for successful companies. That's why Google (NASDAQ:GOOGL), Square, every major retailer and the entire credit card industry is interested in offering their own payment solution.
Companies like eBay, and more recently Groupon (NASDAQ:GRPN) have scrambled to get their payment systems in place in physical storefronts. This move is likely an effort spur wide adoption. Groupon just landed a major hardware partner, inking a deal with VeriFone Systems (NYSE:PAY) to offer Groupon's payment service on VeriFone's terminals. This puts Groupon's service on a point of sale device that holds significant market share in most markets. Of course, Groupon isn't the only company to make their way on to VeriFone's POS devices, Google and PayPal already have similar deals in place, but it is still an important step.
Interestingly it seems VeriFone's shareholders are very concerned about disintermediation. In fact, the concern is so great that the company has taken the time to put together a FAQ about the disintermediation threat on their website. While the company makes a good argument it does have something to worry about. The biggest tell is that the company specifically addresses its plan to act as an open source platform so it doesn't have to pick the winner.
Can Anyone Win in the Mobile Payment Space?
Google's solution, Google Wallet, is the logical extension for the company designed to add purchase behavior to its already massive stockpile of data. Despite some major advantages, namely Android, the company has yet to really make Google Wallet happen. This isn't a big shock since mobile payments in general haven't taken off as expected. According to eMarketer, which predicted $2 billion in mobile payments for 2013 only to cut it in half this month, mobile payment growth is partly stymied by a congested landscape and adoption issues. In the end the strongest solution may simply be the first to gather a significant amount of market share.
At this phase there is no clear winner, particularly with the number of start-ups and established players showing interest in the field. If a company on the front lines like VeriFone isn't willing to pick, I'm not sure I am either. If Facebook payments manage to gain widespread adoption, it could be a strong catalyst for the company, but that's a big if. Google and eBay are fearsome competitors in their own right; it would be hard to bet against either. In the long-run Facebook has plenty to gain, but the road to success is riddled with competition, don't expect overnight success.