Forget the hype, will Facebook Payments go bust?


Facebook Payments might perform really well and I may end up red in the face… Nevertheless, this is a personal opinion about some challenges that Facebook may need to overcome before they take over the world – again.

It’s not simple enough. The ability to send and receive payments relies on both parties having a personal credit card or Visa/MasterCard branded debit card. For those who do not have a credit card or cannot guarantee they will have sufficient funds in the bank to pay friends, this is awkward. To avoid awkwardness, they may simply never join, even when their financial situation improves.

You also need to be friends with the person you are paying. This may be a great way to grow your friend list but this is not for everyone. There are plenty of times when friends bring plus ones (or multiples) to events that someone organises and pays for e.g. hens nights, birthdays, group outings etc. It’s not always appropriate to add plus ones as Facebook friends…but is it awkward to insist they send money the traditional way than to accept their friend request?

Cash still remains the simplest way to pay a friend back. They pay for something e.g. dinner/movie ticket/cinema and you pay them back or shout them the equivalent at your next outing/when you scramble enough cash. For friends based interstate or overseas, cash may not be an option but then with greater distance, people crave more security.

It’s not complicated enough. The idea of making a payment through a Social Network actually scares people. These are the folks who crave the security of logging into their bank system or using a bank issued card to access their money. The idea of trusting Facebook to make a payment is a bit scary. Even though Facebook claims they are PCI compliant and have a fraud department to review dodgy transactions, they just are not known for providing a secure enough platform to entrust them with your card details. The idea of Facebook being able to market products to you directly and give you an option to buy instantly may satisfy some but insult and scare away a lot of others.

It costs too much. For Facebook to do this, they will have to invest heavily in security to stay PCI compliant and may be liable to pay for any breaches. As they are not directly making money from this, will the costs outweigh the benefits?


3 examples when Digital Payments failed. What can they learn from store cards?


1. BebaPay

BebaPay was Google’s attempt to introduce digital payments to Kenya. BebaPay was a prepaid card powered by Near Field Communication (NFC) technology. It was first introduced to the transport system with the view to extend to shops and small businesses. BebaPay also hoped to expand to other parts of Africa eventually. It was introduced to the transport system to solve the inefficiencies of the current cash-based system. Commuters were running out of change, losing their tickets and sometimes being overcharged. Drivers and conductors were unable to obtain meaningful data to assess where the popular routes were. BebaPay was trying to make payments simpler but ultimately found it hard to compete with the simplicity of cash. With cash, bus operators were paid in real-time and to the full cent. They also had more flexibility and privacy to do as they wish with the cash. For everyday consumers, BebaPay was less convenient than cash and therefore had no value-add. With the bus operators offside, commuters indifferent and no regulation/law to enforce the use of BebaPay. It died.

2. Square Wallet

Square was a digital wallet, invented by Jack Dorsey (inventor of Twitter). Square is a mobile application with a credit card reader attached to a plug-in from a headphone jack. Customers could swipe their credit card and set up a tab with their name and then head into one of the participating stores to pay by just saying their name. It was supposed to revolutionize payments by making transactions more human and easier. However, against the convenience of cash, cards and the benefits of store cards, Square did not add enough value to cause any real disruption. Even with Starbucks and Whole Foods Markets on-boarded, it failed to gain widespread adoption. The application was removed from Apple and Play stores.

3. Google Wallet

Similarly, Google Wallet failed to gain adoption for similar reason. The NFC chip wasn’t integrated with many devices and the user experience wasn’t compelling enough to gain widespread adoption. It made payment simpler but not simpler than what was already available.

Digital payment ventures based only around the idea of simpler payments may wish to ask themselves the following questions. Am I really making it simpler? How well do I know my customers, both the merchants and users? Will I be adding an additional layer of complexity?

Vs Starbucks

Alternatively, store cards like the Starbucks store card have done very well. Starbucks store cards have had widespread adoption with millions of active users and billions of dollars being deposited into their cards annually. The differentiator being the loyalty program and free in-store deals that provides customers with a true end-to-end customer and payment experience.