Many have suggested the payments industry is poised for change, and Facebook appears to be another technology behemoth aiming to join the fray. And while innovation and expansion are often good thing, this news should actually be a cause of concern for investors.
The reported expansion
Media outlets everywhere are reporting Facebook is "weeks away" from receiving approval from the Irish regulatory body that will provide its users the ability to save money on Facebook and in turn send that money to merchants and friends.
This has caused many to immediately think of the PayPal unit of eBay and Google, both of which are like Facebook in that they're California technology titans preparing to become dominant forces in the mobile payment landscape.
The major changes
The reason behind the expansion by Facebook is understandable. eBay has seen PayPal grow its mobile payments from $750 million in 2010 to a staggering $27 billion in 2013, and reported a staggering $8.8 billion in the fourth quarter alone. And this wasn't simply the result of people buying things from eBay through PayPal on their mobile devices, as nearly half of the payments were done outside of eBay.
Similarly, Google has been aggressively expanding into the payments industry as well through Google Wallet. It allows for individuals to send money to both stores and friends through their phones, but also has a physical card to use in stores that don't. It even lets individuals store loyalty cards and receive deals from merchants.
Yet there is one critical distinction between Facebook and the others that may ultimately result in its failure.
The concern from consumers
McKinsey, a consultancy, recently released the results from its Mobile Payments Consumer Panel in which it surveyed 1,000 individuals across the U.S. surrounding their opinions on mobile payments. The firm noted:There has been buzz about the promise of mobile wallets for several years now. Yet, despite the launch (and relaunch) of dozens of applications with various added benefits beyond simply "paying with your phone," consumers are not yet broadly using these applications, and they are certainly not leaving their physical wallets at home.
There were many reasons behind this, and part of the reason was the immensely fragmented mobile payment industry itself. After all, some merchants may allow for the Google Wallet, others PayPal, and some will take neither.
But perhaps as a glimmer for optimism for Facebook is that consumers ranked access to deals and offers behind only convenience as the most important features of mobile payments. With likes and trends and all sorts of consumer information at the hands of Facebook, a mobile payment solution could provide this perfectly.
Yet the study continued by noting, "privacy remains a concern -- 68% of consumers would withhold personal information even if it means losing out on tailored offers."
The reason for Facebook to fear
It should come as a surprise to no one that Facebook has always dealt with concerns from its users surrounding it privacy. But those concerns have only intensified in recent years.
Last week the Federal Trade Commission sent a letter to Facebook ensuring if changes were made to the way customer data is collected -- which Facebook is known to do -- on WhatsApp, users would be made aware. The letter noted: WhatsApp has made a number of promises about the limited nature of the data it collects, maintains, and shares with third parties – promises that exceed the protections currently promised to Facebook users. We want to make clear that, regardless of the acquisition, WhatsApp must continue to honor these promises to consumers.
All of this is to say, if consumers are hesitant to adopt mobile payments as a result of privacy concerns, that problem would only be exacerbated if Facebook was the end mechanism.
The key takeaway
People understand eBay and PayPal at their core are involved in commerce, so they trust making payments on it. And while the same isn't true of Google, its less used social network capabilities could in fact be a benefit toward it in the payments landscape.
It is too early to tell what the motivation and investment from Facebook will be in the mobile payments space, but one has too think this could be a move in which it is only setting itself up for failure.