Banking on Facebook: The social media giant makes its first moves into the credit-card payments business.

untitledRecently, I blogged about how Google’s efforts to expand its business activities beyond pay-per-click advertising — thereby diversifying its revenue stream — haven’t borne much fruit.

In 2011, ~96% of Google’s revenues came from PPC advertising.  In 2014, it’s ~97%.

But Google isn’t the only behemoth whose income is completely tied to advertising.  Over at Facebook, ~93% of the company’s more than ~12 billion in revenues come from advertising as well.

Compared to Google, Facebook is a relative newcomer to the advertising game.  But once it got in on the action, its growth was very robust.

In 2014 alone, Facebook’s advertising revenues were up 58% over the previous year.

But … there’s a bit of a problem.  In a world where advertising revenues are tied to “eyeballs,“ Facebook’s user growth isn’t on the right trajectory.  When the network has nearly 1.5 billion active users already, there’s not a lot of room for expansion.

This is reflected in Facebook’s Q4 year-over-year percentage growth stats as published by Mediassociates, a media planning and buying agency:

  • 2009: ~260% year-over-year growth
  • 2010: ~69% growth
  • 2011: ~39% growth
  • 2012: ~25% growth
  • 2013: ~16% growth
  • 2014: ~13% growth

One can easily imagine 2015’s growth figure dipping into the single digits, giving Facebook all the hallmarks of being a mature company in a maturing market.

But the always-enterprising folks at Facebook have had something up their sleeve which they’re rolling out to the market now:  getting into the multi-billion credit-card payments business.

Facebook send money appThey’re starting small:  introducing a “send-friends-money” functionality to Facebook’s Messenger app.  But this rather innocuous addition hardly does justice to Facebook’s end-game strategy.

When you think about it, Facebook’s aims make a lot of sense.  With nearly 1.5 billion active users around the world, Facebook’s accounts make PayPal’s ~162 million active accounts seem pretty paltry by comparison.

But revenue from PayPal’s transaction tolls isn’t chump change at all:  nearly $8 billion last year alone.

Without doubt, Facebook is also looking at the huge amount of business done by American Express and VISA; think of the billions of dollars those companies earn by charging merchants between 2% and 3.5% on the value of each credit-card transaction.

Facebook’s entry into the business can be facilitated neatly through its Messenger mobile app, making it just as easy (or easier) to pay for goods and services as with a credit card.

Considering that Facebook’s users with mobile phones are already spending time on the network an average of an hour per day, it’s pretty easy to see how people could make the transition from traditional credit and debit card payments to using their Facebook app for precisely the same purposes.

And Facebook could sweeten the pot by working with retailers and marketers to offer real cash loads that would likely juice participation even more – sort of a cash rebate in advance of the purchase rather than afterward.

So we shouldn’t think of Facebook’s new “send-friends-money” feature as a one-off function.

Instead, it’s just the tip of the iceberg.  If I were a manager at VISA or AmEx, I’d be thinking long and hard about the real motivations – and real implications – of Facebook’s latest moves.

U.S. consumers: More comfortable than ever making online purchases.

Online purchasingHave U.S. consumers finally gotten over their skittishness about making purchases over the Internet? A newly released study from Javelin Strategy & Research suggests that they have.

The 2010-2014 Online Retail Payments Forecast report draws its findings from data collected online in November 2009 from a randomly selected panel of nearly 3,300 U.S. consumers representing a representative cross-sample by age, gender and income levels.

Based on the Javelin sample, nearly two-thirds of American consumers are now either “comfortable” or “very comfortable” with shopping online.

On the other end of the scale, ~22% of U.S. consumers continue to be wary of online purchasing; these people haven’t made an online purchase within the past year … or in some cases, never.

These figures suggest that the consumer comfort level with making online purchases is as high as it’s ever been. And how are consumers making their online payments? The Javelin study reports that among those respondents reporting online activities, the five most popular payment methods are:

 Major credit card: 70%
 Major debit card: 55%
 Online payment service such as PayPal®: 51%
 Gift card (good at one specific merchant): 41%
 Store-branded credit card (good at one specific merchant): 27%

Even with more than half of consumers using a debit card for online purchases, the total dollar volume of online sales attributable to debit cards is less than 30%. Javelin forecasts debit card share to continue climbing in the short-term, however, due to tighter consumer credit standards now in force.

Bottom line, the Javelin report suggests that despite the periodic horror stories that have been published about credit card information and other financial data being captured or mined off the Internet, the convenience and price/selection benefits of online shopping are winning the day with consumers. Not surprising at all, really.