Facebook (FB), the world’s largest and most popular social media network, has unveiled a payment service through its messenger function. It allows Facebook users to send and receive money between friends in a secure way. Currently in the pilot phase with access offered only to a limited number of users, the service is expected to be available to all US-based users in coming months. Far beyond the peer-to-peer money transfer, this feature has enormous potential for Facebook’s business. Joined with the other ongoing developments by Facebook (and beyond), this feature can change the global e-commerce arena and the way people buy goods and pay for services online.
This article details the process of sending and receiving money using Facebook’s payment service, and how this service will potentially change Facebook’s business model and impact its competitors and the global e-commerce market. (For related reading, see article: How Has The Shift To E-Commerce Affected The Profitability Of Companies In Credit Services?)
What does a user need to use Facebook’s payment service?
- A verified Facebook account
- A verified debit card updated in Facebook records (Visa or MasterCard debit card only, issued by a US Bank)
How does one send money to a Facebook friend?
- Start a chat session with the Facebook friend.
- Click/tap on “$” icon in the messenger window.
- Enter the amount to transfer.
- Click/tap on “Pay,” which allows you to add your debit card (for the first use).
- Following the successful addition of your debit card, transferring money to your friend is instant.
- Security Tip: One can create a PIN to keep access to payments secure. (under Settings -> Payments -> Security -> PIN)
Benefits of Facebook Payment Service
- Completely free-of-cost, instant money transfer between family and friends
- Available across multiple platforms (iOS, Android, Windows) which support Facebook Messenger
- Additional security that is possible by creating an additional PIN
- Availability of payment history (under Settings -> Payments -> Payment History)
- Deletion of debit card from Facebook records possible, if needed
Constraints of Facebook Payment Service
- At present, it does not facilitate payments using credit cards, prepaid debit cards or Paypal.
- At present, it is available only to select US-based users (expected to be rolled out to all US users in a few months).
- Money transfer is available only in US dollar currency.
- Received money may take up to 3 days to appear in bank account.
- Both friends exchanging money should be 18 years or above.
- Money cannot be sent to businesses.
- Money cannot be sent to individuals who are not on the Facebook friend list.
- Facebook reserves the right to block the payment services to individuals as per their criteria.
What’s in it for Facebook?
Effectively, this new payment service from Facebook is similar to the ones available from existing service providers such as SnapCash, Google Wallet, Apple Pay and Venmo (See: Venmo: Its Business Model and Competition). These firms need to attract new users for the single, specific service they offer: automated payment.
The big game-changer is that Facebook already has a much larger, highly engaged, active user base. A group of friends out on a trip taking selfies and uploading to Facebook can now instantly share the cost of tickets/hotel accommodations/food without having to leave Facebook, or starting any other payment- specific app on their mobile phones. (To read about mobile apps that generate financial benefits for users, see article: Mobile Apps That Help You Earn Money.)
Some spin-off benefits for Facebook will include the ability of Facebook, through integrated payment services, to have tighter control over its user base through user verification and reduction of fake profiles — something which has been a challenge for Facebook. The payment service will also promote more user engagement, as users won’t need to exit Facebook for any payment or purchase.
Aided by the network effect (users bring in new users), many more users will sign up for Facebook solely for the purpose of convenient money transfers. But Facebook isn’t looking only to keep users hooked to its site or to bring more users onto its network. A larger set of opportunities is now available to Facebook with the integration of its payment service. The present offering of its friend-to-friend payment can soon expand into a larger service that integrates merchant sales and makes such transactions available to the end user. In July 2014, Facebook started testing the “Buy” button which allows users to directly purchase products available in their news feed.
Without the payment option, this “Buy” button could still be perceived as an advertisement by the users. The game changes completely when users have their card information stored on Facebook records. Temptation to buy will be higher when the transaction can be completed with just one tap/click, with the stored card in Facebook records. More importantly, upon stumbling on a “Buy $49 gold-plated wristwatch” in the news feed, a user will be substantially more confident about making the purchase through Facebook, if he has successfully sent $2 to a friend in the recent past.
The addictive and engaging nature of Facebook will take care of the rest of business, tempting a user to spend. How many times have you bought more than one item on Ebay or Amazon, though you intended to buy only one?
With almost all local and global brands and businesses already present and actively engaging their customers on their respective Facebook pages, expansion of payment services will help Facebook offer better services to advertisers, brands and businesses (and perhaps start charging for it). (To read more about how Facebook’s strategy has enabled it to continue to reap profits, see article: Why Facebook Will Keep Making Money.)
Backed by active tracking of users’ online habits, their demographics, their interests, their search criteria and their network, Facebook is much better positioned to capitalize on its network with such an ecommerce-like offering.
Beyond the product sales, Facebook can also expand into facilitating payment for services, something which ecommerce players like Ebay and Amazon lack. Facebook already knows about your friend who visited Miami last summer,as he uploaded trip pictures and changed his location and status on Facebook. While you check your friend’s album, the smart Facebook technology can suggest to you resorts, hotels and spas to consider when you plan your next trip – possibly the ones where your friend had checked in (and similar ones from Facebook’s advertisers list). You are now more convinced to go to Miami, booking the same accommodation, dining at the same restaurants and taking the same boat rides (or at least a few) that your friend did. The technology behind the network and its recommendations has a massive potential that Facebook can capitalize upon.
The ultimate result will be a better alignment between Facebook, advertisers and users. So far, clicking on Facebook ads leads the user to advertisers’ websites for a purchase. This newly integrated payment service, as previously mentioned, will enable retention of the user on Facebook’s site while the purchase is fulfilled directly. Advertisers will achieve the intended “display and sale” of their product/service, Facebook will retain the user on its site, and the user will benefit by being able to carry out all activities on one trusted online location with minimal clicks – a win-win situation for all!
With this new money transfer service and payment offering, who would be the real competition for Facebook? Will it be mobile payment services like Snapcash and Venmo, or is Facebook ready to take on the might of Ebay ( EBAY) and Amazon (AMZN)?
Facebook is way ahead of mobile payment services like Snapcash and Venmo. Its 1.3 billion global users, of which 500 million actively use its messenger service, provide the scalability potential for its payment service usage. Google Wallet and Apple Pay may be more likely competitors, especially in the likely scenario of Google (GOOG) linking its wallet to Gmail and other popular services in the future. However, Gmail and GoogleTalk are used passively, and the Google Plus social network has failed to be a real threat to Facebook. Apple ( AAPL) too isn’t offering anything which can challenge the massive user base of Facebook. Overall, then, similar payment services, even from the giants like Google and Apple, are not in competing territory for Facebook at present. Unless something completely new comes to the market in the future, Facebook seems to have a clear edge for money transfer services.
What about e-commerce? Ebay owes its success to connecting individual sellers (not just the brands and businesses) with individual buyers. The real game changer for Ebay was Paypal, which allowed individuals to send, and more importantly receive, money through cards. Backed by global and local brands and businesses already active on Facebook, similar integration of payment services can make Facebook the next ecommerce giant. (See article: Which Is Safer: Paypal Or A Credit Card?)
All in all, Facebook has the potential to become the online Walmart or Tesco – the multi-brand retail mall of the world! It can offer not just products, but also services.
The Bottom Line
Despite the existence of many payment-specific mobile apps, payment processing is mostly limited to cash and check payments (though diminishing) and card usage (still high). Providers of Facebook-like money transfer services are attempting to not only outpace the competitors, but also replace such traditional and inconvenient methods. E-payments with innovative solutions embedded in the social networks, with their large user bases, will enjoy the advantage. The end user will be spoilt for choice – with a variety of options with new, enhanced features to make life convenient at zero cost. Facebook seems to be in the leading position as of now, ready to take on the might of e-commerce giants.