Facebook eyes mobile payments but faces many challenges, including PayPal
By Chantal Tode
August 16, 2013
Facebook is looking for greater real-time relevancy
While Facebook is looking to extend its significant mobile might into payments and take on PayPal, the social network’s previous commerce-related failures suggests it may face some challenges.
Facebook is planning to test a way for users of mobile commerce applications to complete a purchase with their Facebook login information, according to reports. The strategy is similar to PayPal’s Express Checkout, which already appears on numerous mobile Web sites and apps.
“Facebook is not known as a payment method,” said Wilson Kerr, vice president of business development and sales at Unbound Commerce, Boston. “In fact, the failure of Facebook stores to take off is a good indicator of how the intent to buy is not there during the Facebook experience.
“That said, the sheer number of Facebook users means that whatever the try, it could have an impact,” he said.
“The easiest way to enter this space is to have an address and credit card autofill component that removes friction during online checkout,” he said. “As more online wallets enter the space, this is less and less of a novelty, so Facebook will not be able to stand out from the crowd, with this alone."
For the Facebook solution, users would first store their credit card information on Facebook. This would enable them to make purchases on the mobile apps of partnering ecommerce retailers without the need to enter billing information.
JackThreads, a flash sale site featuring men’s street, skate, surf and contemporary fashions, is Facebook’s pilot partner for the payments strategy.
Partnering with a flash sales sites on the strategy makes sense for Facebook as these sites tend to see a significant percentage of their sales come from mobile given that the sales are limited in duration.
JackThreads is testing the Facebook payments solution.
One of the reasons why Facebook is so keen on getting a commerce endeavor going is that this will provide the social network with important data about its users shopping activity, which will in turn help it sell more advertising.
The focus is on creating a better mobile checkout experience and does not involve moving apps away from their current payment processing providers.
Focusing on the mobile checkout experience is a good move, as paying for a purchase is typically one of the most frustrating experiences for mobile users given the small screen size on smartphones and the need to enter information such as a mailing address and credit card number.
Social vs. commerce
While Facebook’s mobile use is growing quickly, users still think of it primarily as a place to interact with friends, and its value for commerce is unclear.
This was the main reason why the social network’s Stores initiative did not go over well with users. Between 2011 and 2012, numerous retailers such as Gamestop, Gap, JCPenney and Nordstrom all opened and closed storefronts on Facebook.
Facebook also launched Credits in 2009 as a way for users to purchase items on its platform but ditched the strategy last year.
Another commerce strategy, launched last year, is Gifts which enables users to send physical goods to friends.
"'Social' and 'commerce' seem natural allies but Facebook has not been able to delivered on its promise to leverage its millions of customers to shop cross-channel," said Gary Schwartz, Toronto-based author of “The Impulse Economy” and “Fast Shopper, Slow Store.”
"Apple and Amazon have proven that community plus one-click checkout works," he said. "But these leviathans started their business explicitly to sell stuff. Facebook did not.
"Is Facebook a place loyal users go to meet or to shop?"
The main difference this time around is that Facebook is not trying to selling anything from within its own platform. Instead, it hopes to leverage its strong brand recognition with consumers to encourage them to use Facebook as a payment method in retailers’ mobile apps.
With mobile commerce and payments volumes growing significantly, Facebook as well as a host of others, including Google and Amazon, are trying to make a dent here, but they face stiff competition from PayPal, which has been in the space a lot longer and is well trusted by consumers.
One of the challenges Facebook faces here is that it does not have the best reputation for guarding the privacy of users’ information. Consumers tend to be very careful about who they share their financial information with, so Facebook may need to clean up its privacy record before it can expect to make a dent in the payments space.
“The mobile payments space is red-hot, so it makes sense Facebook will try to make a play,” Mr. Kerr said.
Chantal Tode is associate editor on Mobile Marketer, New York
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Comments on "Facebook eyes mobile payments but faces many challenges, including PayPal"
Jay Salton says:
August 18, 2013 at 4:54pm