In “Zuck” We Trust- The Making of Facebook’s Payments and Commerce Network.

In Zuck We Trust

Facebook is one of the most underrated companies in the world, and now this ubiquitous platform connecting family and friends around the world, is silently and carefully building a new money and commerce network. Consequently, this has serious ramifications on how money transfers and commerce will develop around the world in times to come. Before I get into more details, here are some quick facts to set the context:

1) Facebook alone has a community of 1.55 billion users, with 800M people on Messenger, 900M on WhatsApp, and 300M on Instagram.

2) Globally, in 2014, banks collectively made profits of approximately $1 trillion on a capital investment of $10 trillion (ROE 9.5%), including $600 billion made in Transactions and Origination (Payments, Fee, Advisory, etc.) related activities. The top 500 banks earned $620 billion, while smaller banks and other institutions claimed the rest.

3) In 2014, Facebook applied for Irish regulatory approval to become a payment and remittance processor.

4) The total number of credit cards issued in the world is approximately 1.6 billion across four major networks — Visa, MasterCard, American Express, and Discover.

5) This social giant already has money transmitter licenses across 48 states in the US. Facebook was also recently granted a patent for “risk assessment and scoring” of its users.

In comparison, PayPal currently has approximately 173M active users and 183M cards are on file with Braintree. Apple has 800M credit cards on file, courtesy of iTunes. Apple Pay has 60M registered users, and about 3M active users.

As a localized test, Facebook via Messenger has already launched P2P transfers in the US. For the time being, it will store money deposited by its users and transfer funds from one Facebook member to another.

This functionality will offer a practical, alternative banking and remittance system to millions of people who do not have a bank account or those who want to transfer money to friends or families within the USA with ease.

So what does this mean? To understand it better, let’s look at the larger picture.

The Economic Evolution of Civilization — Facebook’s Blueprint So Far

To understand the future, it is important to trace the past. For thousands of years, the economy of any civilization has evolved in three distinct stages. Let me explain what this means.

· Stage 1 is the Creation of the Community (the social network) — People settle down next to each other and form connections. In modern day terminology, this has been replaced by the social graph (web).

· Stage 2 is the Beginning of Commerce. After trust and social links have been established, people begin to transact (exchange goods and services), and commerce grows.

· Stage 3 is the Introduction of Payments & Finance. Continuity and Growth of Commerce require payments to settle a transaction between buyer and seller, and availability of “finance and credit” to provide “leverage.”

“COMMERCE always follows the COMMUNITY, and to facilitate COMMERCE one needs PAYMENTS.”

As you can see, the development of Facebook over the years can neatly serve as a modern-day analogy for this economic evolution. That’s how beautifully this paradigm ties in with Facebook’s overarching strategy for internet domination in the future, which is why merely calling Facebook’s plans “a big deal” is slightly understating their importance and potential impact.

Facebook is the largest consumption platform on the Internet, and this can cause massive disruption in the Payments, Commerce, and Finance Industry.

· Remittance — The market size for local P2P payments and cross-border remittance was $1 trillion and $580 billion respectively in 2014

· Commerce — Digital goods and services constitute an approximately $600 billion market.

· Finance: International household consumer finance is a $4–5 trillion market and offers a large opportunity in the emerging market ecosystem.


Local remittances via P2P payments are estimated to be $1 trillion in value, and P2M payments are expected to be a $5–7 trillion opportunity. I call this flow the “working capital” requirement of the worldwide household economy.

In 2014, Immigrant workers sent approximately $600 billion to individuals in their home countries (Cross Border Remittance), with one of the largest financial inflows to the ICPM corridor (India, China, Philippines, and Mexico). Most of this money was typically routed through two companies — Western Union and MoneyGram — which currently hold a duopoly in the global remittance market. The average cost to transfer funds was ‘punitive’ at 7.6%, even going as high as 10%.

Since 2012, most major banks, such as HSBC and Barclays which offered remittance services have now exited the space due to growing fines and money laundering concerns. A gap has been left in the international money-transfer market since this exodus by mainstream banks.

While there are some new entrants to this space, such as TransferWise, World-Remit and Xoom, Facebook is an entity with a growing reach of 1.5 billion users and more, most of whom are transacting and transferring billions of dollars every day outside of the Facebook ecosystem. The potential to capture this payment volume by extending payment functionality to allow the community to send actual money to one another or to merchants within the Facebook platform is massive.


Digital Commerce is scaling at a mind-boggling rate. The volume of digital goods (eBooks, vouchers, news, videos, music, subscription services, paid apps, etc.) transacted is enormous. Digital commerce is also a rapid business paradigm, unlike physical commerce where goods have to be stored, transferred, and delivered, and then the money collected.

With serious ambitions around Virtual Reality, Entertainment, and Commerce the payment layer is an absolute must, and Facebook is clearly prepared to leverage this. Last year, the company drove 3.5 billion app installs across desktop and mobile and shared more than five billion pieces of content from third-party apps on the platform.

Social (Conversation) Commerce: If you have a keen eye, you might have noticed the “buy” buttons appearing on Facebook and Instagram. To enable the buying transaction, payment functionality within the platform that allows the user to discover, select, buy, and pay, is the key.

A step in that direction is also a fix for the supply side of the commerce by encouraging businesses to open a Facebook Store. The shops/stores are still in the testing phase, but some already feature “buy” buttons that will allow the entire shopping experience to happen within Facebook — from product discovery to checkout.

A significant opportunity that Messenger & WhatsApp is positioned for is Contextual (Conversational) Commerce, where the transaction starts with the conversation and is completed (including payments) within the messaging app.

Amazon and Alibaba lead the pack in e-commerce, but what they do not own is the “largest community and interest graph” of buyers. This is where Facebook is best suited to leverage and power the commerce. I will talk more about that in the later part of this article.

Getting back on point, with more than 50% of searches now happening on mobile devices, Google is facing off against Facebook, Amazon, and Apple in a power grab for internet browsing habits.

Facebook is also testing local markets to facilitate local commerce on the platform, and enabling all this requires payments. One correct way to do so is to let people get comfortable, adjust their behavior with the product, allow them to store money (prepaid), and use it for in-platform purchase and transfer.


Currently, the credit market is dominated by large regional banks and non-bank entities. In 2014, banks generated $400 billion as interest income and $ 600 billion as transaction and origination fees. However, with changing dynamics in technology, most retail banking businesses have increasingly become vulnerable to competition in profitable sectors such as consumer finance, mortgages, insurance, SME lending, retail payments, and wealth management. Thus, in the not-so-distant future, when billions of dollars of commerce are powered through its ecosystem, there will emerge an opportunity for Facebook to expand into consumer finance as well (Consumer Credit, SME Finance, etc.).

It is important to note that Facebook was also recently awarded a patent for risk assessment and profiling of borrowers using their propriety algorithms and technology. In the near future, I foresee strong partnership models emerging between Facebook and banks (More about that later in this post).

Part 2 — Integration of Commerce, Conversation, and Payments in the Messenger Platform.

In order to achieve successful evolution from a social platform to a social operating network — the first of its kind — Zuckerberg not only needs the “Facebook Universe” to provide an all-encompassing “life solution” from communication to transaction, but also needs to lead the field in terms of reach in each of these aspects.

In fulfilling these requirements, the unbundling of Facebook Messenger is my favorite growth hack. Messenger today has more than 800 million monthly active users and is growing rapidly. In July 2015, Messenger also launched P2P payments in the United States, which will slowly and surely be extended to other parts of the world. There is another giant in the Facebook universe, WhatsApp, which has more than 900 million active users, but prefers to remain silent about its payments ambition.

So how will payments (in Messenger) work? Here is a short demo by David Marcus, head of Messenger.

Messenger Payments Screenshots

Messenger Peer-to-Peer Payments service allows the user to link their debit card to their account to pass money through messaging. The Messenger app now includes a small “$” icon above the keyboard which opens a payments screen where users can type the amount they wish to send.

At present, Facebook is not charging fees on transfers and, for now, the ability to send money directly to contacts is limited to the US. Soon this will be expanded beyond US borders.

However, the real story of Messenger goes beyond payments. This is the start of conversational and contextual commerce.

The Rise of Conversational and Contextual Commerce

Humans are social animals, and the conversation bubble (within messenger) is one identifiable “point of least friction” to complete a transaction. This can be achieved when commerce and payments are embedded in the conversation.

A significant step in that direction is the recent partnership between Facebook and Uber; now you can order your ride within Messenger.

My experience, in China and other SE Asian countries, of using Weixin (WeChat) and Alipay for booking taxi, checking flights, making payments, video calls, etc., has reinforced my conviction that a chat based messaging, payments, and commerce platform is the future of the “attention economy.”

Facebook is already getting ready for a world without websites, mobile apps, and mobile numbers by transitioning their proprietary Messenger app into an all-encompassing platform, primarily an operating system on which entire businesses and third-party apps can be built in ways that lock them into the Facebook ecosystem.

The business model here is not payments but commerce, because the margin in payments is very thin. Businesses and local merchants will want to pay to be featured or promoted, which is a much bigger opportunity. But, payments and commerce are also inter-connected in the digital world.

Thus far, the “gatekeepers” (operating system owners) have controlled access to the mobile world. Therefore, Facebook is now building its own payments and commerce platform based around Messenger in an effort to build their own access point.

As we speak, Facebook Messenger is enabling companies to connect with their customers on the platform, initiate video and voice calls, share location, make P2P payments, and use the “tools of expression.” Messenger is also experimenting with an artificial intelligence-powered personal assistant called “M.”

The possibilities of development around Messenger are infinite, and I’ll write a separate post on that sometime soon.

Payments and Commerce are inter-connected in the Digital World

The Evolution of Money: From Barter to Banknotes and Now, “Bits and Bytes”

Money is “bits and bytes.” Historically, money was used in many forms: cattle, cowrie shells, coins of silver and gold, paper, and more recently, plastic cards.

With technological progress, money is losing its physical form as it becomes digital. The materiality of banking and finance is radically changing. This makes the creation of money through the Internet possible. Think of Bitcoin, a peer-to-peer crypto-currency independent of the central bank or state authority. We cannot see digital money, only manifestations of its movements through networks and transactions. This is where Facebook comes in. It is the master of the network systems with 1.5 billion users worldwide.

Allow me to digress a bit. Facebook experimented with Facebook Credit, a virtual currency that enabled users to purchase items in games and non-gaming applications within the Platform. However, In June 2012, Facebook credit was discontinued.

When the Internet was built, transactions protocols were left unfinished. Now, there is some massive action happening in that space with banks and major tech companies taking the lead to build solutions around “blockchain.” Does this mean that Facebook will create its own virtual or crypto-currency? My answer is “No,” certainly not in the next ten years.

Firstly, creating a virtual currency (similar to Bitcoin) is currently not prudent for Facebook, as it will put them in direct conflict with banking regulators and governments all over the world, especially when Facebook needs all of them on its side to scale globally.

Given its size and scale, a virtual currency by Facebook can have a severe impact on the monetary policies of various economies. Continuing with an existing currency allows Facebook to focus on what they are best at: providing a platform and permitting others to innovate and create value for the community members.

Secondly, a large chunk of micro transactions in the world still happens in CASH. In India, the number is as high as 95%, if not more. Money moves through an evolutionary process. There is still a long road before digital payments become the norm in cash-economies. Crypto will follow digital trend, although early stage experiments will continue to run parallel.

While payments open the door for growth, it possibly pales in comparison to the larger opportunity for Facebook: offering a way for people, who do not use banks now, to do commerce.

As the McKinsey data holds, “there are more than 2.5 billion people globally who do not use financial institutions or conventional banks.” These economies are almost entirely cash-based and suffer from the chicken-and-egg problem: since no one is willing to convert cash into an electronic form, there is no incentive for merchants to accept electronic payments, and vise versa. With nothing to sustain this conversion and the transmission of electronic money, the cycle continues.

However, the world is changing. By 2020, nearly every person on the planet will have access to the Internet. When every household on the planet has access to a smartphone with a fast Internet connection, the paradigm changes and the idea that we need plastic cards, paper money, or bank branches fades away. This has already started to happen.

During my travels to China, I saw how seamlessly and often Alipay and WeChat were used. For example, in February 2015, during the Chinese New Year, WeChat users sent and received more than 3 billion “lucky money” red envelopes using the app.

With such support for a world where transactions occur without intermediary instruments such as banknotes or plastic cards, it is easy to imagine a future where workers in developing countries get paid through Facebook via P2P payments, store their money on Facebook, and even purchase local goods and pay merchants using Facebook.

Thus, the effect that Facebook could have on the payments and commerce ecosystem is nothing short of profound.

So why would Facebook facilitate millions of transactions and online purchases for next to nothing?

For one, it gets them closer to the holy grail of data — that is, how users spend their money. Not surprisingly, the core of Facebook is a data and ad network.

The Holy Grail — DATA — Strengthen the Core:

Here’s an example. People assign Facebook “likes” to products and ideas regardless of whether they themselves are customers or not.

While “likes” on commercial products or pages allow people to make an educated guess on consumer response, the act of assigning a “like” alone cannot answer whether the “like” giver is a customer with certainty.

However, in a world where Facebook could combine financial transactions and social graphs, advertisers would be given near-perfect information about their audience. No other tech company in the world would be able to match Facebook’s targeting capabilities — viz. interest, emotions, transaction, purchase behavior, income, savings, and social graphs.

The recent financial results validate the growth of Facebook’s contextual advertisement in a mobile world. Their mobile advertisement ARPU is higher than that of Google.

Facebook’s recently awarded patent also allows it to build risk profiles of community members based on their social and transaction history and share it with banks and financial institutions. This technology could allow lenders to use a borrower’s social network to determine whether he or she is a good credit risk.

The patent states, “When an individual applies for a loan, the lender examines the credit ratings of members of the individual’s social network who are connected to the individual through authorized nodes. If the average credit rating of these members is, at least, a minimum credit score, the lender continues to process the loan application. Otherwise, the loan application is rejected.”

Payment information is the Holy Grail. If Facebook can track purchases, it can build richer profiles based not just on browsing patterns, but also on actual cash spent. Even better, if users end up buying things they’ve seen advertised on Facebook, it will allow the company to prove that their ads were worth the money. That would cement Facebook’s position as a “must-buy” for advertisers and further secure its advertisement business.

Ultimately, technology is changing one of the most primary mediums that touch every person on the planet — money.

Digital payments are required to facilitate seamless digital commerce.

Bank for the Millennial(s) — Digital Generation

Today, the Internet (mobile) is deeply disrupting the financial services sector. Accelerating network speeds and the rapid evolution of the smartphone is changing the banking industry.

Our currency is data — a series of ones and zeros. Sometimes, we convert these numbers into paper money at a nearby ATM, but mostly we just shuffle them in and out of our account with things like electronic bill payments, direct deposits, debit card transactions, or sometimes a paper check.

In the future, our financial service providers will look less like existing banks and more like a technology company.

When I think of the “Banks of Tomorrow,” I think of Facebook, Apple, and Google, and wonder, “When will banking get redefined in the same way as the music, movie, and book industries?”

Will the Facebooks, Apples, and Googles of the world replace existing banks? Keep in mind that the Facebook ecosystem includes sleeping giants such as Facebook Messenger, WhatsApp, and Instagram, which reach more than 1.5 billion people and possess a global ambition to cover the rest.

My answer to that question, however, is “NO.”

The reason is simple. Who would control the base infrastructure if Facebook did these things? The answer is, “The banks would.”

The point to remember is that all innovations in banking, such as PayPal, have been on the old banking infrastructure of the past and it will continue to be so in the near future.

Banks are regulated and need licenses, and this is an essential governance feature of the monetary ecosystem we live in.

So, rather than Facebook and Apple replacing the banking system, we are more likely to see partnership models emerge where Facebook would partner with Wells Fargo or Citibank to offer services.

A perfect example: Facebook could provide data access to Lending Club for risk-scoring and targeting the right borrowers, while Citibank offers the credit lines.

Steadily, such collaborations will lead us to the inevitable age of “banking as a service. Facebook’s proposition could be to open the API’s for local banks and institutions and let them integrate into the Platform.

One extreme of this is “issuance of money,” AKA Bitcoin, which I’ve already answered that in the earlier part of this post.

So what are other Technology (Payments) companies doing?

Facebook has (had) little choice but to get into payment. Its biggest competitors are doing it. Here’s a look at the largest and/or most innovative names in financial remittance and payments, and where they stand at last count.

Google has been trying to leverage its 900+ million active Gmail user base to push its email-based payment system. Their earlier efforts to kick start Google Wallet have not yielded desired results. Google is also making an attempt in P2P mobile payments with its Android Pay (new avatar of Google Wallet) launch in the US market.

Apple Pay: Apple Inc. has 900 million active accounts attached to an iTunes payment system. It was launched with much fanfare in 2014 and currently has a head start on most of the payment players, but there have been significant challenges in customer and merchant adoptions. By various estimates, it has 60 million registered members, but only 3 million people are actually using it. The results of their recent strategy to get into P2P payments are still far off.

Tencent-Owned WeChat (Weixin) is an instant-messenger service in China. It operated as a payment processor and has now morphed into a provider of everything from financial services to remittances. As early as 2013, users in China have been able to register their bank accounts on the app.

Alipay (Ant Financial) is a giant in China powering more 75% of transactions and is a formidable player with 400 million users. Alipay operates across channels and platforms and is more than just the Chinese equivalent of PayPal (as incorrectly compared by some in Western media).

PayPal has been on an acquisition spree with Venmo (P2P payments), Braintree (Gateway), and now Xoom (Remittance) and making some real progress. PayPal is also moving towards mobile payments with its apps and one-touch payment services, most recently using the fingerprint scanner on smartphones to authorize payments.

Samsung Pay was launched in August 2015 in Korea and in the United States in September 2015.

Amazon Pay has plans around consumer payments; however, we have yet to see any significant public step in this direction. For payments, Amazon has two options — Checkout by Amazon and Amazon Simple Pay. I have tremendous respect for Jeff Bezos and it will be interesting to see how he goes about building payment infrastructure to power the “Amazon Commerce ecosystem.”

Starbucks Payments, among large retailers, is the most successful in-store mobile payments scheme because it is independent of handsets and operating systems, and is built around customer loyalty.

Snapchat launched a feature called Snapcash in November 2014 in partnership with Square, a mobile payment firm. It is very similar to Facebook Messenger’s new feature, with users registering a debit card then typing an amount and tapping a pay button to send money to a friend.

Line Pay: The Japanese social app Line is also rolling out its Line Pay service for in-app payments, from users to retailers and businesses, then eventually to one another as well. Korean rival Kakao has also been experimenting with mobile payments.

ChasePay: Consumer banking arm of J.P. Morgan Chase is launching Chase Pay, a digital wallet that can be used to pay by mobile phone in local stores and restaurants and to pay in online stores and apps. Chase has massive mobile payments ambitions of its own. At launch in mid-2016, it plans to auto-provision its 90+ million consumers into a wallet with payment privileges across a bunch of merchants, including those partnered with MCX.

• In the UK, banks are using Paym and Pingit. Barclays recently allowed users to make social-media-enabled payments to one another and small businesses by linking their accounts to its Pingit app.

• In India, PayTM and FreeCharge are leaders in this category with anywhere between 30–40 million active users between them in a country of 1.2 billion.

Facebook will be competing with established technology platforms that have millions of customers with credit cards attached to their service. However, in emerging markets, payment instruments are the equivalent of credit cards and Facebook is best positioned to leverage this opportunity, especially in countries where banking infrastructure is not as mature as it is in the United States or Europe.

These opportunities, however, only play fractional parts in Facebook’s over-arching plan to dominate the Internet. In fact, one could say that Facebook’s endgame is to turn itself into the Internet for millions of global users (more on that in Part 3 below).

Part3 — Facebook is ‘becoming’ the Internet: One Layer at a time

The visible Internet is comprised of several layers powered by various tech companies.

Outside of content, the internet serves to fulfill a variety of infrastructural purposes, from social inclusion and communication to identity and commercial transactions, which combine to enhance life as it exists today. Facebook is slowly taking over all these functions, either standing unchallenged in some categories or competing with pack leaders in others. Refer the image below.


LOCATION: While this layer is controlled by Google through their “Maps” (90% of phone users in the world use this product), Facebook wants to bring that within the app.

IDENTITY: This layer is owned by Facebook, with profiles and identities of more than 1.5 billion people in the world. The strategy of using “real names” during the early days has paid off well. Moreover, now the pipes are connected well into the open web (Facebook Login/Connect is a credential). With an open graph API and automatic connect system, Facebook has expanded its platform to the rest of the web. Today, Facebook is “the largest public directory of people in the world.”

COMMUNITY — 1.5 billion Facebook users, 400 million Instagram users, 800 million Messenger users, and 900 million WhatsApp users. No tech company operates at this scale and level of engagement. Facebook, by numbers, is the largest community on this planet.

COMMUNICATION: Messenger and WhatsApp are the preferred communication platforms for 1.5 billion users. Others such as WeChat, Line, SnapChat, YikYak are nowhere near that scale.

CONSUMPTION: Community and communication make Facebook the largest consumption engine for content (news, videos, posts, articles, and product discovery). I already see a huge trend where Twitter influencers are migrating or building their parallel communities on Facebook because that is where the consumption is.

COMMERCE: In e-commerce, Amazon and Alibaba lead the pack, but the discovery graph and social commerce engine is tilted towards Facebook. Now because of social, consumption, and discovery layers, Facebook is well positioned for social (aka Facebook commerce, Instagram commerce) and conversational commerce.

TRANSACTION: Credit and payment systems power commerce, and with baby steps in that direction, Facebook is already making its intentions clear.

SEARCH AND DISCOVERY: Google dominates the “search” function in the web world. However, Facebook is the largest ecosystem for content creation and consumption, and this is changing the game. I foresee Facebook emerging as a big player in the “search” business. You can get a glimpse of what search could look like in the top bar of your Facebook app.

Facebook has made mobile platforms — Facebook, Messenger, WhatsApp, and Instagram — the focus of its expansion strategy in emerging markets. India, which accounts for more than 140 million of its 1.5 billion users, is already the fastest growing user community within the Facebook ecosystem.

Increasingly, for millions on this planet, Facebook is the Internet, with its content discovery, news notifications and alerts, instant articles, influencers and interest communities, native videos and in-app player, Messenger, save for later function, events, Notes, sharing and reminders, and much more. What once started as a student profile network for Boston colleges has now morphed into an all-encompassing social platform with limited need to visit any other application or website.

­I foresee Facebook becoming a sort of utility in the emerging markets for identity, education, information, commerce, payments, communication, and entertainment.

This point was recently articulated by Jeremiah Owyang,

Facebook is replicating just about every social media feature and more, to become a social operating system. It’s easy to miss their evolutionary progress when features are dropped out, but when you list much of Facebook’s progress you can see how they’re eating the online world…. Facebook is quickly evolving beyond a social network to be a social operating system.”

So How (Why) will Facebook win this War?

The peer-to-peer payment business is estimated to be a $1 trillion opportunity. In the US, there is not yet a P2P payment system centered around communication platforms. Alipay and WeChat dominate in China. In India, there are plenty of wallets, but none has achieved the scale in P2P and P2M. Their predominant use case is utility payments (power, gas, DTH, and mobile recharge).

Facebook might not be the first mover. However, it has an enormous advantage: a strong relationship with more than a 1.59 billion community members globally and the utility of its platform. With that, it can effectively overcome the serial balkanization of hardware vendors, operating systems, wireless carriers, merchant signups, and above all, customer loyalty and trust.

Build Around Commerce:

Hearing about growth in Messenger and WhatsApp user base during the earning’s call in November 2015, I could imagine the possibilities for Facebook in multi-trillion dollar markets of commerce, remittance, and payments.

Facebook has a massive mobile community. The question, then, is what else these community members might want.

Payment systems have become a standard answer. Payment card companies, banks, telecom carriers, electronic payment systems such as PayPal, and other tech companies including Google, Apple, and others are all trying to get into the game. To capture this market opportunity, Facebook has already started putting together the building blocks: a platform for not only P2P payments but also payments to stores and merchants.

The next step in “personalization-commerce” (where a seller can offer a special deal to a specific person) is very much possible via Facebook and Messenger. The form of conversational commerce powered by Messenger and WhatsApp can be a game changer.

What Facebook is aiming for is a platform where consumers are comfortable buying the products and applications online, and developers or innovators can generate significant revenue by selling the products they are building. Once these paid apps, local shops, and merchants are activated on to the Messenger platform, a massive wave of commerce will be unleashed.

Remember, Messenger is no longer a simple app, but a commerce, communication, and payments platform

Facebook needed a smart payments system. Ever since David Marcus joined from PayPal, Facebook has taken steps to make payments work. By integrating with Braintree and Stripe, it moved in that direction, but the most significant step was to unbundle Messenger from Facebook, which allowed it to build the appropriate payments security (PCI) within the now singular platform.

With 800 million MAUs, Messenger is one of most used communication platforms in the world, and it needs to get to a stage where users can safely and easily transfer money from one user to another, of course, for a small fee.


Peter Lynch once said, “Competition is never as healthy as total domination.” As Apple, Google, PayPal, and others offer their money transfer services, Facebook is not alone anymore in this space. However, as big as the digital payment business is, it is very likely that there will be multiple winners.

Some time back, I was looking at investing in a P2P payment startup and tried to process payments without the banks. No matter which direction we looked, the infrastructure is built upon the banks. Therefore, I believe, that in the near future, the client-facing stuff will get taken over step-by-step by non-banks, but the “rails” will be the banks as they also multiply and create money for the economy.

Future collaboration might include teaming up with regional or national banks to provide financial services. Facebook could manage the high-traffic online mall and lease space to partner banks and merchants to help sell their products. It could also share user profile and extensive data to help partner banks offer personalized services tailored to individual customers’ habits. Whether users are sending money to a friend or paying a bill online, Facebook might emerge as the default personal payment system for millions worldwide. Maybe some form of collaboration with PayPal or local payment “pipes” and banks would help.

Apple Inc. was not the first to offer streaming music. In the same way, I think, Facebook is not afraid to enter a crowded space. If you think otherwise, I would love to hear your ideas on payment systems (except blockchain) and infrastructure in a P2P environment which works with minimal bank involvement.

Strategic Acquisitions:

Facebook buying out Stripe could be a very smart move. Payment processor Stripe operates in the $1.5 trillion global e-commerce market and is the operating machinery behind Facebook “buy” button.

Another remote possibility could be Facebook buying PayPal. David Marcus ran PayPal until 2014. However, the infrastructure-fit and a steep price of $44 billion might be a big concern.

Having said that, Facebook has always proven great with acquisitions — WhatsApp, Oculus Rift, Instagram, etc.

In cross-border remittance, I love TransferWise — I think they are brilliant, instead of moving the cash across borders, they maintain a local book and do an in-country settlement. Simple yet unique. Overall, it seems like a match made in heaven. Facebook needs a payment solution and cross-border remittance infrastructure, ideally in P2P environment, while TransferWise can use Facebook’s community to scale.

The key to win is in creating a ubiquitous payment mechanism that will expand the possibilities for everyone: the community, merchants, and retailers.

Build a ‘Universal’ Payments Platform

To win the war, a payment “wallet” cannot be captive to just one mobile operating system or device. The winner needs scale and should work across operating systems, shopping channels, browsers, and technology platforms.

What customers need today is a “universal wallet” that enables them to use it everywhere they like to shop, not limited by the fragmentation we see in current payment instruments. Messenger should build that platform, enabling payment capabilities that users like and use to pay their friends or favorite merchants and businesses.

There also won’t be just one winner. In the words of Karen Webster, However, the bigger winners will have ‘real scale’, the “wallets” that grab consumer share and merchant volume, won’t be tethered to a device or an operating system or a channel. They will, instead, tether themselves to the cloud and the path that the consumer wants to follow — wherever those customers want to take their wallets.”

Humans will be making approximately $16 trillion worth of retail transactions in 2016. Eventually, whoever ends up as a leader in this digital ecosystem will make zillions in transaction fees and collect massive amounts of customer data to control contextual-commerce.

While there are several formidable players, I’ll bet my bottom dollar that Facebook will come out on top when the dust is settled. History suggests it’s not a good idea to bet against Mark Zuckerberg ;-)

While the world is busy reading breaking news about Apple Pay, Android Pay, and other payment startups, the Giant Slayer is silently at work.

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