Digital advertising is a booming business, with the market expected to approach $200 billion annually by 2017. But you know what makes it look like pocket change? Banking. McKinsey reports that banks pulled in $1.3 trillion in payment fees two years ago. Facebook is extremely tight-lipped about its interest in this market. COO Sheryl Sandberg snapped off a crisp "Nothing new to announce," when the question came up during April's earnings conference call, and company representatives expressed confusion as to our interest. But even JPMorganChase CEO Jamie Dimon and American Express CEO Kenneth Chenault expect Facebook (and Google) to be a future rival of their mega-banks.
The source of the hubbub is a Financial Times report this spring that Facebook is close to securing a license in Ireland to market e-payment services in Europe and developing economics. With the license in hand, Facebook could facilitate users sending money to loved ones; conduct foreign exchange; or store money digitally or on a plastic card. In theory, it could even open the way to a crypto currency like Bitcoin.
Payments have historically been a boulevard of broken dreams for Facebook. Gifts, peddling Bacon of the Month Club-style presents, bombed. The "Want" shopping button never made it out of beta. And Facebook Credits, virtual currency for its games, which some tech observers believed could rival PayPal and overtake advertising as the company's No. 1 source of revenue, never achieved liftoff because it was both confusing and too restrictive. In the first quarter of 2014, payments and fees accounted for less than 10% of revenue, down from 15% just two years ago, and all of it from the company's credit card-based system for its waning desktop gaming business.
Even as Facebook foes Google and Amazon also stumble in their pursuit of payments, their lure remains strong. First, they could shore up Facebook's anemic average revenue per user numbers around the world. North Americans generate $5.85 each to Facebook's balance sheet, mostly through advertising. In Europe, that number sinks to $2.44; in Asia, it dips further to $.93, before bottoming out in the rest of the world at 70 cents. As that number trails off, so too does those users' appetite for advertising. "If somebody is paying for something, that validates what their interests are," says Manu Sporny, chairman of the web payments community group at the World Wide Web Consortium, which is trying to create a universal standard for web transactions. In addition, Facebook "gets to charge the person for that information as well. It helps them advance on two fronts at same time."
Although the company once considered offering peer-to-peer payments, now that it has more resources, it has a greater interest in diversifying its revenue stream. For example, remittances—money transfers by a foreign worker to family back in her home country—might potentially be "more lucrative than a pure payment play," says a former senior manager on Facebook's payments team. In the realm of peer-to-peer payments, Facebook has a huge edge because it knows both the payers and the receivers, which is critical in complying with complex financial regulations. Plus, it could take advantage of less competition (in addition to the banks and Facebook's rival tech giants, there are 667 mobile payments startups on AngelList) and the margins are higher. Western Union, for example, takes up to a 15% cut of remittances. "Facebook is well positioned to take advantage of its user base and provide value," the former manager says, "not only in India, but also in Mexico or Indonesia."
Change won't come, though, until the products are "not just a little bit better but five times better," says Kristo Käärmann, cofounder of the foreign exchange disrupter TransferWise, one of the startups Facebook tried to partner with on its e-money product. One five-times-better possibility? WhatsApp, the drop-dead simple messaging service that's already used by more than 500 million people around the world. Facebook is looking for a way to make money from its expensive purchase, one that ideally wouldn't force Facebook to trample upon the startup's anti-advertising pledge. "WhatsApp is potentially a massive m-payment system," says Lou Kerner, a venture capitalist and founder of the Social Internet Fund. "If you look at WeChat [a competing messaging platform], it's already a payment system." Or perhaps Messenger will become Facebook's payments play. After all, its new chief, David Marcus, is best known as the guy who reenergized PayPal in the last couple of years.
Facebook payments would be just another way for the company to continue on its path of building an additional piece of the new mobile fabric. Much like Parse apps, at some point, users might not even know when they are using a Facebook product. And the company wins either way.
A version of this article appeared in the July/August 2014 issue of Fast Company magazine.