Over the past few months, I have been trying to put together a series of articles on the changing face of payments. I have a bunch of drafts sitting in a place without a cohesive thread to wrap it with. This week’s announcement of Facebook launching its own Payments service acted as a catalyst for this post. I will figure out a way hopefully to bring all my notes to future posts on this topic.
m-Pesa and the birth of Mobile Payments
Mobile Payments as a service is not new. Vodafone pioneered the model with its m-Pesa service in Kenya which has since been copied and tweaked across the world. That model is closely tied to carrier billing systems. The new wave of payments riding on top of messaging services use first party (Apple iOS, Google Android)and third party (Facebook Payments) infrastructure that are not reliant on carrier billing systems. Instead they are tied to the app/service providers themselves cutting off the middleman in the transaction. For now, they also promise fee free means to send money (with a debit card on account) which has the potential to disrupt the existing balance of power.
Everything in Facebook revolves around Friends. And their freshly minted payments service is also packaged around giving money to friends through their Messenger service. The video below captures how it will work.
For now, the service is available only for Facebook users residing in the US and who use the Messenger service (anyone with a mobile device at this point). It also requires a Visa or MasterCard Debit card on account. The best part about it for now is that it is free. There is no 2.9% surcharge on transactions that pretty much everyone else charges (Venmo/Paypal, Square Cash) if you don’t have a bank account attached. And that is a big deal.
Facebook is putting the sheer size of its user base to work here and if the service takes off, be a legitimate player in the Payments space. It makes logical sense. It has the audience, it has service providers and it has negotiating power. Most important of all, it has the infrastructure to drive all this. It might be something as simple as person-to-person money transfer today. But the potential for this is massive.
In the coming weeks, Facebook is expected to unveil a deal with newspaper and magazine publishers. Imagine putting the Payments infrastructure to pay for articles you want to read someday. This will not happen for now. But it is possible in the future. Facebook has spawned a huge industry of small business service providers making everything from jewelry to accessories to kids clothing. Imagine integrating their Payments service with such offerings. That would pose a serious threat to Paypal which dominates the space today. It could also disrupt the growing e-commerce space by offering simple transactions inline. The opportunities are endless. Peer to peer transfer of money is just the start.
And then there is Whatsapp. Facebook Messenger is big alright. But Whatsapp is huge and rapidly growing across the world. Imagine Facebook unleashing this payment system on Whatsapp and going global with it. Imagine the opportunities there. In months, Facebook would be a serious challenger to Paypal and the likes. And given the much broader reach of Whatsapp, this would be a game-changer.
Having written all this about Facebook Payments, you are probably wondering the reason why Apple Pay is on the title. There is a valid reason. The very pillars on which Facebook Payments is built, its huge swath of users is similar to what Apple boasts of in the smartphone space. Not all those iPhones support Apple Pay but an ever increasing number will do. Throw in the Apple Watch and you have the handy means for someone to give money just by a few taps on the phone or the Watch with all the authentication required for the transaction.
Apple has iMessage. Just as Facebook Messenger app is needed on smart phones to use the chat mechanism, iMessage is the default messaging client on all iPhones and comes pre-installed (and unremovable). Apple can enable a Facebook Payments like feature that rides on top of iMessage. For now, this could be supported by the iTunes account credit card (requirement anyways) or could be tied to your credit card bill in countries where credit cards are not as popular. On iPhone 6 and beyond, Apple Pay could be the driving mechanism behind the iMessage Payments.
Google enabled its Wallet service over email a couple of years ago. It hasn’t had much traction for whatever reason. For Google to overlay the Wallet service on top of its Hangouts SMS app on Android devices would be a simple proposition if it so chooses to. Google Wallet transactions with a debit card attached to the account is free like Facebook Payments. It just needs the right vehicle. A billion plus Android phones is the perfect vehicle.
All of these pose a threat to Paypal, the uncrowned king in the space right now. Square Cash is still a fledgling player which could also get punished by these new developments. Not having a robust messaging platform to piggyback on will be a challenge for Square. While Paypal is entrenched enough not to have immediate implications, if Google, Apple and Facebook push their own payment services, Paypal’s relatively higher level of friction will stick out.
Audio Commentary: If you dont have the time to read through this post, you can now listen to it in about 8 minutes. Go for it. Feedback always appreciated.