Facebook and Amazon set sights on PayPal’s mobile payments leadership
Facebook and Amazon are challenging PayPal’s lead in the mobile payments market, where popularity and trust amongst consumers will be determined by who has more consumer-friendly new services.
Facebook’s poach of PayPal president David Marcus points to changing potential in mcommerce and payments while signal how serious the social network is about monetize its mobile messaging business. At the same time, Amazon is making a move to potentially surpass PayPal as it threatens in the digital subscription payment sphere.
“With over 200 million users on Messenger and one of the brightest minds in payments at the helm, the resulting [Facebook] product has the potential to be highly disruptive,” said Jordan McKee, analyst at Yankee Group, Boston.
“Without question, commerce and social are becoming inextricably intertwined but no one has nailed the right formula; Facebook is a strong contender to accomplish this.”
“From my understanding, no definitive plans have been made as to what Messenger will evolve into, but I imagine it could turn into something that looks very much like Tencent’s WeChat or Braintree’s Venmo on steroids,” he said.
Marcus, the prior president of the eBay-owned digital payments service, will head the operations of Messenger, the chat mechanism Facebook recently split into a standalone app.
Unlike the traditional social networks, mobile messaging apps have direct access to a user’s contact list via their mobile phone, leading to rapid connections and growth. While these apps were initially cautious about enabling brands to setup an official presence, big players such as WeChat and Line now have opened their doors to quality brands creating sales and loyalty applications, and managing customer support within their apps.
Given the ubiquity of mobile messaging apps, Facebook has an enormous opportunity to innovate on these channels, which have been plagued by low revenue projections, indicating optimal monetization hasn’t be figured out, yet.
As the messaging app market continues to spawn, monetization has been the main focus. A recent report from Juniper Research found that instant messaging apps will account for three-quarters of all mobile messaging traffic in 2018.
Specifically, the messaging traffic from the likes of WhatsApp, Kik, Line and Viber, to name a few, will consist of 63 trillion messages by that same time.
Tencent-owned WeChat has passed over display advertising to focus on integrating e-commerce solutions.
With WeChat, a product referral from a friend can be a completed purchase in a matter of moments and users may never have to leave the application on their mobile phone.
A large part of the social-to-sales infrastructure in WeChat has been built up by both Tencent and third parties. But it is still very early days for e-commerce in WeChat.
Brands can use WeChat in a few ways to support sales growth, including setting up their own brand shops, working with malls, using direct sales platforms for user-generated sales, and using loyalty cards for location-based promotions and member offers, though the Juniper report points out that messaging apps will only generate 2 percent of the entire mobile messaging sector’s revenue, at about $3 billion.
The difficulties these app breeds face with generating revenue may soon come to be resolved.
And as Facebook’s Mark Zuckerberg and Jan Koum of WhatsApp have been preaching as of late, ads are not how to monetize messaging; here comes payments.
Given Zuckerberg’s penchant for Internet.org, it is not unrealistic to think that developing markets will be the initial entry point.
While many analysts predict an apocalyptic like battle between whatever Facebook is brewing and what currently exists, there are notable challenges ahead aside from the initial formation of a new messaging payments feature.
“Consumer adoption of PayPal’s mobile payments app hasn’t been all that impressive, and considering that PayPal is a payments company, I can’t see a social networking company doing a better job,” said Nathalie Reinelt, analyst at Aite Group, Boston.
“While Facebook has a much larger user base, their users aren’t all transacting on their platform currently and if they were to launch a mobile payments app, Facebook will struggle with consumer trust due to concerns around how transactional data might be used or sold to third parties.”
As for PayPal, this is an unfortunate announcement, but far from devastating.
The company has a strong product pipeline and has developed a sound vision around the future of commerce. It has assembled a team of top-tier talent that will help leave it on stable footing after Marcus’ departure at the end of the month.
Given the company’s ongoing reinvention and emphasis on developers, Yankee Group predicts that Bill Ready, who joined the company via the Braintree acquisition, is next in line for the top spot.
Amazon takes on PayPal
This is a big week for major platforms looking to up the ante on mobile payments.
Amazon is on the prowl and has its sight on PayPal territory with expectation that it will launch a new service to place the e-tail giant between consumers and companies offering subscription-based payment options.
Becoming the middleman for bill pay and payment transactions means trouble for PayPal, as Amazon is planning an near identical system with its own payment service where consumer credit cards stored on Amazon will be able to be make payments and have cash debited from their cards on file.
“I don’t think Amazon’s venture into subscription payments is their endgame,” said Ms. Reinelt.
“They are smart to expand their one-click payments footprint in a predictable environment where they can control and resolve any technical issues quickly before they scale out that functionality more broadly.”
Amazon has been a notorious digital wallet for years and so the expansion is not surprising. If Amazon chooses to launch a mobile payments offering, its success in that vertical will entirely depend on how well it is executed, as shifting consumer behavior to mobile payments is far more difficult than shifting consumer behavior online.
As Amazon opts for third-party interaction, taking advantage of a reoccurring model, Facebook is looking to become the first successor in an assault on monetizing mobile messaging.
“What can be made certain is that Facebook did not hire Marcus just for his mobile expertise. Facebook’s payments intentions continue to become more apparent and Messenger provides an ideal avenue into the space,” Yankee Group’s Mr. McKee said.
“And the announcement from Amazon regarding subscription billing is one that should be watched closely.”
“The commerce giant is looking to expand its influence into the payments space by leveraging the massive number of payment cards it has on file as a battering ram,” he said.
Michelle is editorial assistant on Mobile Commerce Daily, New York