A Look At Facebook’s Payments Business
While it generates most of its revenues from advertising, Facebook appears to be getting serious about other related businesses. After introducing payments via its Messenger app to all its U.S. users in June 2015, recently the company launched a group payments option in Messenger. This option would allow users to split bills and settle group payments conveniently. Facebook currently does not charge users for payments via its Messenger app and is working towards making this the “go to” app for all user needs. This feature is aimed towards making other apps such as Google Wallet, PayPal or Venmo redundant for Facebook users. Reports suggest that the company is introducing a peer-to-peer payments system on its WhatsApp platform in India, indicating that the company is exploring the payments business seriously. However, Facebook has maintained that adding a payments feature to its app is aimed towards user convenience to increase engagement, rather than an additional revenue stream for the company. Facebook does not charge for payments via Messenger and is not likely to charge for group payments.
Increasing Advertising Revenues Through Better Engagement
While payments could conceivably become a significant additional source of revenues for Facebook, the company is currently focusing on using it as a facilitator to drive advertising revenues. In a recent interview, David Marcus, who runs Facebook Messenger, said that “You [still] need to enable payments and all that kind of stuff to remove friction from the experience when someone wants to buy something. If you do that, then the value of that conversation for the business increases.” This indicates that Facebook’s efforts to build an effective payments system on Messenger are aimed at increasing the number of conversations on the platform, which should ultimately drive advertising revenues. Facebook is looking to make its Messenger app the go-to platform for users to carry out transactions such as booking tickets, chatting with customer service representatives and now making payments and splitting bills. If the company is successful in doing so, it could improve engagement substantially, driving incremental ad revenues.
According to our estimates, advertising on its core platform is the most valuable business for Facebook, accounting for nearly 70% of its valuation. We expect Facebook’s average revenue per user to increase steadily over our forecast period and reach $110 by 2023.
While Facebook expects a meaningful slowdown in the growth of its advertising revenues over the long run, the company is not currently focusing on other significant revenue streams. The payments business is being built as a facilitator to increase user engagement on its platform. However, we believe in the longer term as the digital payments industry witnesses growth, payments could still become a revenue driver for Facebook.
**Credit to Forbes, https://www.forbes.com/sites/greatspeculations/2017/04/12/a-look-at-facebooks-payments-business/#4ff3ad506670