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Why Facebook suddenly wants to be your wallet

Facebook already handles your social life; now it wants to handle your money. Hacked screenshots recently revealed a hidden payment option inside Facebook’s popular Messenger app, which is used by 500 million people around the globe. The feature, discovered by a Stanford computer science student snooping around existing code – would let users send money to one another in a message using debit card information. Facebook hasn’t commented on the hack or on when, if ever, it might activate the feature.

Meanwhile, some of tech’s biggest players are already pursuing similar strategies. Rising social network SnapChat teamed up with mobile payments company Square to launch Snapcash late last year. The new feature allows Snapchat’s more than 100 million users to send cash to one another after a one-time process of adding bank details to their existing profiles.

Meanwhile, Apple recently unveiled Apple Pay, a mobile wallet app that lets users store credit card information and then ‘tap and pay’ with their iPhones. For the moment, Apple is content to act as something of a middleman in this process, making it easier for customers to use their existing credit cards while collecting a tiny fee from the banks in the process.

Facebook’s interest in payments has evidently been simmering for a while. Last year, the company poached PayPal president and payments guru David Marcus to head up Messenger, a move that now makes a lot of sense. Meanwhile, in a recent call with investors, Facebook CEO Mark Zuckerberg was quite explicit in saying that “over time there will be some overlap between [Messenger] and payments.”

It’s important to note that, as leaked, Facebook Messenger’s payment feature would only allow peer-to-peer transactions, i.e. money transfers between the banks of ordinary users, not retailers or companies. Speculation is that a service like this might be especially popular among foreign workers sending money to relatives back home. Currently, the remittance industry charges notoriously high fees: By undercutting them, Facebook could find a healthy revenue source, should it choose to ultimately monetise the tool.

But, and here’s where things get really interesting, there’s nothing stopping Facebook from ultimately opening up the payment service to businesses, as well, allowing them to accept debit card payments from customers via Messenger. (Zuckerberg has hinted as much, noting that the planned tool will ultimately “help people share with each other and interact with businesses.”)

For merchants, this would have some huge advantages. Credit cards, not to mention PayPal, Stripe, Square and other services, all charge merchants fees ranging from around two to four per cent of total purchase price – an amount considered exorbitant by critics. But Messenger’s system would be based on debit cards, which traditionally charge businesses much lower fees, often capped at a few cents.

With this kind of savings hanging in the balance, it’s not difficult to imagine millions of merchants signing up to use Messenger payments. With its billion-plus users, Facebook would have the potential to create a payment network that rivals – and, in some cases, dwarfs – the major credit cards, virtually overnight.

Once merchants and consumers are hooked, Facebook may ultimately turn its focus to profits. With credit card fees currently set so high, the company would have plenty of room to make money from merchants while still undercutting traditional credit cards by a wide margin. If the network were to eventually charge a USD 1 fee (as has been suggested) or even retain just a fraction of a percent of each transaction, the revenue stream could be enormous.

What’s clear from these efforts – as well as recent maneuvers by Square, Stripe and even online payment veteran PayPal – is that a financial space dominated for so long by traditional banks and their credit cards is finally beginning to face some serious challengers. For consumers and merchants, there’s much to gain and little to lose aside from high fees. Meanwhile, for tech players like Facebook, payments may well represent the latest, greatest path to monetisation.

Ryan Holmes

Ryan Holmes is the CEO of Hootsuite. He founded Hootsuite in 2008 and has since been at the forefront of social business, leading the company's team while funding programs that empower the next generation of startups and entrepreneurs.
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