The Bank of Facebook and the future of payments

Guest blog post by Sascha Breite, managing director, SIX Payment Services

As the way consumers interact with one another is changing, so too are the rules of commerce. Social networking is becoming the prevalent form of communication and, consequently, the likes of Facebook and Pinterest are becoming primary outlets for businesses to reach their customers.

Increasingly, however, these social platforms with large networks are also enabling members to make purchases for a wide variety of goods from games to clothing.  By facilitating compelling shopping experiences and transaction capabilities, social networking sites could have the potential to overthrow the existing market power houses and transform the payments industry as we know it. Just how real is the possibility of a Bank of Facebook and what does this mean for traditional payment players?

Social networking sites typically boast networks consisting of millions of people and so the advantage of doing commerce through these platforms is the reach to a much wider and willing customer base; businesses can easily, and at a relatively low cost, reach their target audience. It is unsurprising then that we are witnessing a move to social commerce. However, as social networks gain users, who spend increasing amounts of their time on these sites, inevitably consumer confidence and trust in these channels is growing. Whilst to date this has opened opportunities for businesses looking to procure their goods via this platform, this also opens the gate for social networking sites to shake up the traditional payments model.

Traditional card schemes currently cannot offer an affordable solution for low value payment acceptance and so allow social platforms - Facebook in particular - to exploit this gap in the market by providing merchants with an alternative and more viable micropayments system through its virtual currency, Facebook credits. In an interesting turn Facebook recently announced that they are abandoning Facebook Credits in favour of local currency pricing. Unsurprisingly, this has caused many to suggest that Facebook payments could be the future of micropayments.

However, before we get ahead of ourselves, it is worth mentioning that Facebook and its counterparts do not have the security credentials that the traditional card schemes can claim. Even one of the most eager adopters of F-commerce, the online fashion retailer Asos, handles payments by redirecting users to an Asos site within Facebook – and reiterates that fact that the company does not then share details with Facebook, clearly illustrating their belief that any issues around security and trust could slow consumer adoption rates.  

The fact remains that Facebook and its kind have yet to suggest that payments servicing is an area they are interested in moving into. At the moment, especially for Facebook, the bulk of revenue comes from advertising space and payments is not a core competency in which they have years of experience. Nevertheless, Facebook has proven it has the capability to move into the payments space. The likes of Facebook are a force to be reckoned with and the payments industry needs to innovate to ensure its future existence.