What Facebook’s P2P Play Means for Competitors and the Social Media Titan (March 19, 2015)
Facebook’s announcement this week that it soon will roll out P2P payments in the U.S. was hardly a shock to payments industry insiders, given the fact that Facebook last summer hired former PayPal executive David Marcus to head up its messaging products. But now that Facebook has made its move to launch P2P within its Messenger app, the question is how it may affect competitors—including financial services providers pushing P2P—and fit into the company’s long-term goals.
The phased rollout will enable users to send payments at no cost using their debit cards. Funds will be available to recipients after one to three days for settlement, Facebook said. The social media network will encrypt and store users’ debit card information on its servers, as it does for those who’ve purchased games or gifts. For security, Facebook customers must type in a PIN or use the Touch ID on Apple devices during the initial setup. Using the PIN or fingerprint for each payment after that is optional.
Sending money via Messenger is similar to several other free P2P services linked to a bank account or debit card, including Square Inc.’s Square Cash, and PayPal’s Venmo, which has caught on with younger consumers. But where Facebook has a key advantage over those services, observers say, is how users already signed into Messenger now can send a payment without leaving the app. And, Facebook’s reach—with 500 million registered Messenger users within the social media network’s global customer base of 1.4 billion—dwarfs other providers. Facebook CEO Mark Zuckerberg last summer hinted to investors that over time, the company plans to add any payments features it develops to its other apps, including WhatsApp and Instagram. Facebook reportedly plans to eventually expand P2P on Messenger internationally.
Facebook doesn’t see P2P as a direct revenue-generating opportunity, Steve Davis, Facebook’s product manager, told re/code in an interview this week. Though Davis didn’t elaborate on Facebook’s broader P2P strategy, analysts say it’s fairly obvious Facebook’s P2P play is about jazzing up its advertising and e-commerce business. “By having users’ account information [to execute P2P transactions], Facebook will be in a position down the road to enable a payment transaction between those users and Facebook advertisers,” Ron Shevlin, a senior analyst with Aite Group, tells Paybefore. “Facebook will be better able to link advertising to purchases—driving more advertising and probably a higher ad rate—and possibly promising merchants lower transaction or interchange fees, which would further drive up ad revenue,” he speculates.
Facebook’s success with P2P isn’t a sure thing, observes Rick Oglesby, a senior analyst with Double Diamond Group. The social network’s previous efforts in payments, including Facebook Gifts and Facebook Credits, fizzled. P2P is a tough business to crack, even for banks, Oglesby notes. “There have been many failures in the P2P space and there is no guarantee Facebook will be successful at it.”
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