Mobile Payments: And now it’s Facebook’s turn…
Chances are you have been hearing a lot about mobile payments lately. Thanks to the likes of Apple Pay, everyone wants a piece of the action, with Google and Amazon working on plans to enter the market. Even PayPal has been forced to respond to Apple’s announcement in what is becoming a very noisy space indeed.
Last week it was Facebook's turn when it announced (as the last player of the so-called GAFA group) it is planning to offer a payments service to its users.
It will be interesting to consider what impact these companies and their products will have on the future of payments across the globe.
But it is worth starting with some basic questions: What problems is Facebook seeking to solve? Who will use the service, and how will it fare against the competition?
I am definitely intrigued by the potential for Facebook Payments. For one, it is not necessarily something I would use, but something that my teenage son (who is an active member in the Wavey Garms and Wavey Kicks Facebook trading groups) could benefit from.
Wavey is now one of the most influential fashion sites in the UK with over 70,000 members. It was created as a backlash against the apparently high fees charged by eBay. Sellers post their adverts in Facebook, buyers express an interest and then, after agreeing a price they exchange the clothing and (inevitably) cash, sometimes even face-to-face. So converting people onto electronic payments instead of cash could be good for business. And as a father, it would certainly stop me worrying!
But whilst obviously a Facebook Payments option is a winner for Facebook's own trading groups, I am not sure it would fare so well in a wider world of retail payments…
Apple has been brilliant at crafting a new position in the growing "alternative" payments market and has mastered the behavioral economics of the situation. This involved working with an extended payments ecosystem, including existing players (card schemes, bank card issuers) to deliver an experience to consumers and retailers that is familiar and intuitive (and yet perceived to be innovative).
It also demonstrates a good view of the big picture; consumers and retailers don't necessarily want new payment widgets and instruments - on the whole, most people prefer incremental improvements to previously well understood ways of behaving – so paying with a phone is undoubtedly a common practice, seeming as it’s something we all use all the time! Apple has also sorted out the economics (well, in the US at least) so it can justify charging fees to card issuers.
Yet, despite seemingly getting a lead over GAFA rivals, it’s worth remembering that Apple has not really created a new Payments system at all! The Apple Pay service in its current form is really just an extra layer that is added on top of existing payments systems and existing payment providers - specifically card issuers - have no real incentives to join this new add-on service.
So what are the other GAFA players doing? Google launched its mobile wallet two years ago; the proposition was inevitably data-driven, where merchants would see a step change improvement in marketing data, opening a new world of predictive analysis that would drive retail sales and margins. Understandably, Google wished to charge a premium to merchants (enough to make today's merchant service charges appear like small change). But I think we have seen a personal data backlash here - not enough consumers were willing to subscribe to Google's view of payments, and even fewer have been bothered to learn the new way to pay.
Amazon’s recent decision to drop its own Person-to-Person payments mechanism combined with moves into a mobile Point of Sale proposition suggests a pragmatic approach - no new payment instruments, just focus on ways of allowing existing instruments to be accepted by a wider range of retailers.
Which leads us back to Facebook! Like Apple, the company is also using a familiar experience of attaching something in a Person-to-Person message. We can all attach photos so why not a payment?
However, the success of Facebook payments assumes that Facebook friend groups and trading group members may want to send money to each other. It also assumes that consumers will be happy to upload and store financial information to Facebook.
Therefore, despite the fact that a Facebook payment proposition would certainly be different to Apple, Google and Amazon, there are still questions that need to be addressed: will it be a natural enough user experience for a wide population? Will it provide a new service that cannot be found elsewhere at a similar price? And most importantly, if you think this will be a great way for parents to send money to kids, can someone who is friends with my son please ask him to re-friend me?
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