Facebook Is Testing a PayPal Killer

by Tom Taulli | August 15, 2013 2:00 pm

Facebook (FB[1]) reportedly will be testing a new mobile payments product within about a month or so.

According to a report in AllThingsD[2], this new system will allow purchases by using only a Facebook ID and password, making the process fairly seamless. No doubt, this could be a nice revenue opportunity for Facebook … and also a potential threat to existing players in the space, such as eBay (EBAY[3]) and its PayPal service.

Facebook is no stranger to the online payments space. The company already generated $214 million from this business in the second quarter, up 11% on a YOY basis. However, until now, the main focus has been on charges for virtual items on social games.

Yet with this new product, Facebook plans to expand its reach into the massive e-commerce sector. According to a report from Forrester, the global e-commerce market is forecast to increase from $534 billion in 2011 to $1.1 trillion by 2016, or a compound annual growth rate of about 15%.

That’s an opportunity too big for Facebook to ignore.

More importantly, FB has some big advantages. Perhaps the most obvious is its massive base of users, which totals more than 1.1 billion, and many of whom have become accustomed to using their logins to sign into multiple services already.

Also, Facebook is a mobile powerhouse. In Q2, the number of active mobile users[4] spiked by 51% to 819 million and mobile traffic accounted for about 41% of ad revenues. That’s been helped by its aggressive move into the lower-tier feature-phone market; FB boasts more than 100 million MAUs in this segment.

Needless to say, PayPal has some reason for worry. While the service has more than 100 million members, it could face erosion as Facebook users find it more convenient to just use their FB logins. And consider the danger to eBay, as PayPal remains its core growth driver thanks to the mature nature of its auctions business.

Merchants also might want to push for Facebook payments, because Facebook theoretically could offer them more details about user behavior. The social network is a treasure trove of demographic information, which could be helpful in targeting products to consumers.

None of this is to imply that Facebook’s service will be a slam dunk. FB has had issues with some of its initiatives (Camera, Poke and Home) of late, not to mention other companies including Google (GOOG[5]) and Amazon.com (AMZN[6]) have illustrated the difficulty of getting traction in this industry.

Not to mention, Facebook won’t be rushing this one. E-commerce is highly competitive, and working out the kinks is of the utmost importance.

But FB does have core advantages that could make it a big player, and the market is attractive. This could be the new growth spark the social media company has been longing for.

Tom Taulli runs the InvestorPlace blog IPO Playbook[7]. He is also the author of High-Profit IPO Strategies[8]All About Commodities[9] and All About Short Selling[10]. Follow him on Twitter at @ttaulli[11]. As of this writing, he did not hold a position in any of the aforementioned securities.

  1. FB: http://studio-5.financialcontent.com/investplace/quote?Symbol=FB
  2. AllThingsD: http://allthingsd.com/20130815/facebook-testing-out-paypal-competitor-in-bid-to-simplify-mobile-commerce-purchases/
  3. EBAY: http://studio-5.financialcontent.com/investplace/quote?Symbol=EBAY
  4. number of active mobile users: https://investorplace.com/2013/07/facebook-earnings/
  5. GOOG: http://studio-5.financialcontent.com/investplace/quote?Symbol=GOOG
  6. AMZN: http://studio-5.financialcontent.com/investplace/quote?Symbol=AMZN
  7. IPO Playbook: https://investorplace.com/ipo-playbook/
  8. High-Profit IPO Strategies: http://goo.gl/TXQsz
  9. All About Commodities: http://goo.gl/FfP8R
  10. All About Short Selling: http://goo.gl/t5Jzb
  11. @ttaulli: https://twitter.com/ttaulli

Source URL: https://investorplace.com/2013/08/facebook-payments-paypal-ebay-fb/
Short URL: http://invstplc.com/1nBJZMq