According to Jack Plotkin, a finance expert with a decade of investment banking experience at Goldman Sachs, an interesting topic in recent financial news is the announcement of Facebook Financial. Facebook Financial is a pilot project seeking to create a single platform for the company’s e-commerce and payments operations. Facebook has put David Marcus, co-creator of its cryptocurrency Libra and former president of PayPal, in charge of the division. Former Upwork CEO, Stephane Kasriel, will serve as payments vice-president under Marcus. One of the main goals will be to further develop Facebook Pay, the company’s universal payments feature that is said to be planned across its app portfolio. Marcus will continue to run Novi, a division that is building a digital wallet for the Libra cryptocurrency.
Plotkin says that Facebook Financial has a lot of promise if managed effectively. He suggests that the division’s most immediate task is to get WhatsApp payments running in large markets such as India and Brazil, where Facebook invested significant marketing dollars to turn WhatsApp into an e-commerce player. This is more than just an operational challenge as Facebook must find ways to overcome regulatory hurdles in both geographies.
The long-term goal
Plotkin says a longer-term goal is to build Facebook Pay across the company’s entire ecosystem, which would enable a customer to send money to friends and family or purchase goods from any Facebook platform. Right now, Facebook Pay is limited when compared to the company’s global app footprint. Pushing those boundaries will increase the number of payments processed, boost marketing effectiveness, and grow Facebook’s role in e-commerce.
Plotkin draws on his experience advising large financial services clients at Goldman Sachs in emphasizing the importance of controlling the customer’s journey at the point-of-sale. He notes that keeping Facebook’s users inside their apps for payments, rather than having them use Apple Pay, Google Pay, Venmo, PayPal, or other payment platforms, is going to be the key to capturing more of that all-important payment processing revenue and offering one-stop servicing to online retailers.
On the company’s July earnings call, Facebook CEO Mark Zuckerberg said: “As payments grow across Messenger and WhatsApp, and as we’re able to roll that out in more places, I think that that will only grow as a trend.” Plotkin points to this comment and others as clear indications that Facebook is attributing tremendous importance to Facebook Financial and related efforts.
Jack Plotkin notes that it won’t be easy for Facebook
“Banking and finance are highly regulated industries,” says Plotkin. “To date, Facebook has already had a tremendous amount of government scrutiny related to its privacy and marketing practices. With its push into the financial sector, the scrutiny will only intensify, so the company has to be prepared and fully buttoned up.”
Indeed, Facebook recently experienced a regulatory pushback on the Libra cryptocurrency and had to delay its plans to create the Libra token. Plotkin points out that the addition of seasoned executives such as Marcus and Kasriel is part of the company’s strategy to create a robust organization that can weather the regulatory storm. The Novi wallet and Libra are expected to be under the umbrella of Facebook Financial.
“With the pandemic, everyone is online and shopping from home,” says Plotkin. “Facebook is using this opportunity to push hard into e-commerce.” On August 3, Facebook introduced plans for its Commerce Accelerator that will work with 60 startups across Europe, Middle East, Africa, and Latin America. The ultimate goal is “one unified shopping experience across all Facebook apps”.
“What do you do when you have a massive user base?” asks Plotkin. “You monetize it every way you can. Facebook is already squeezing everything it can from the advertising side of the coin, so now it’s looking to go down the transaction path. It wants a piece of the sale, whether it be storefront hosting, payment processing, referral, or delivery fees.” Plotkin points to the introduction of “Facebook Shops” in May of this year as the “inevitable Amazon-fication of Facebook”.
“I get that Mark [Zuckerberg] has said he doesn’t want to replicate Amazon,” says Plotkin. “But Facebook Shops is a lot like Amazon Marketplaces. Facebook may not be running out to set up distribution centers, leveraging existing infrastructure for the time being, but they certainly have the financial muscle to go that route if this model starts to catch on. There is no question that they are about a lot more than being a social network. They want a piece of the consumer’s wallet share.”
Plotkin notes that Facebook’s unprecedented user base of more than two billion, coupled with the company’s resources, make it a major player in any industry it chooses to enter. “Financial services may be as far from Facebook’s core business as you can get,” he says, “but we live in a world where technology undergirds everything and if there is one thing Facebook understands, it’s how to use technology.”
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