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Indulge me, if you will, and let me give you some advice on how to pick a fight. Not a physical, rock-em-sock-em robot kind of fight, but, you know, an argument:
- Pick on somebody bigger than you. Not physically bigger, but you know, someone higher in the ranks, someone better well known, someone like that. A couple of years ago I was having an online argument with someone on my blog, and someone else said to me, privately, “I don’t know why you waste your time arguing with that person. It’s below you.” Ouch. But lesson learned.
- Pick a fight on a topic that’s in your realm of expertise. I’m confident that my political views are 100% correct, but I gain nothing professionally by proving it to the world. Unless I become a political commentator for Fox News, that is. Whoa, there’s a thought.
- Use data to structure your argument. Opinion versus opinion gets you nowhere. Have data or facts that no one else has–or, at least, that the person you’re fighting doesn’t have.
Why am I giving you advice on picking fights? Because I’m going to pick one.
***
I’m going to pick a fight with Brian Roemmele. I’ve never met Brian, but when I tweeted this recently:
“It’s amazing how I much I learn about payments fraud from @cherian_abraham and @BrianRoemmele tweets (and I can’t pronounce either name)”
I meant it sincerely. I’ve only been following Brian on Twitter for a short time, but I’m very impressed with his knowledge and thoughts on the payments and fraud space (I’m impressed with the other guy I mentioned, as well, but don’t need to blow up his ego by mentioning him more than once).
Does Brian meet criteria #1? Well, he is the President at Multiplex Media Corporation, and the CEO of 1st American Card Service, which he founded nearly 30 years ago. Unless he started the company when he was six, he’s probably not some smarmy Gen Yer spouting off about stuff he knows nothing about. And Brian has nearly 100k Twitter followers, which is a whole lot more than I have (wow, I’m really a TwitterLoser, aren’t I?). Criteria #1 met.
What about criteria #2? Brian recently opined that “Facebook Payments will become a micro-merchant payment system and change everything.” Hmmm. Sounds to me like he’s talking about how consumers’ payments behaviors might change. And that’s right up my alley. Criteria #2, check.
To see how good a job I do with criteria #3, I’ll just have to pick my fight.
***
The subtitle of Brian’s post is important: That Person To Person Payment, Well It Just May Be A Business Transaction. Brian writes:
“It turns out that many person to person transactions, when you really explore the cause and effect of how many people in the same country use these systems, turn out to have a business purpose. Data from PayPal show this very nebulous line between person to person payments and business payments. In fact, one can argue that PayPal is the quintessential example. This may be true, however PayPal’s business is a bit more complex. Even so, there are a tremendous amount of micro-merchant payments on this platform that could also be called a person to person transaction.”
This is all true. Brian uses this, however, to argue that:
“Facebook will explore this path as others in this space. One can easily assume that a vast majority of the 25 million micro-merchants would have at the very least a personal Facebook account. Facebook is currently eliminating all costs to send money between people on Facebook Payments, they absorb these costs. Facebook Payments will rapidly become a major platform for micro-merchants looking to save money with a $0 cost to process payments. It will be very hard to convince many micro-merchants to continue with cost based payment acceptance it is very likely that a vast majority of the first few rungs of micro-merchants will abandon these companies (e.g., Square, PayPal, Intuit, Amazon) for the lower fees and easy use of Facebook payments, especially service based businesses. Thus Facebook Payments will become over time: Person to person payments; Micro-merchant payments; Small merchant payments; Large merchant payments; Retail payments.”
My take: Facebook has huge hurdles to overcome to succeed with P2P payments, let alone evolve to take over large merchant and retail payments.
***
How do I doubt thee, Facebook? Let me count the ways:
1) At least to start, this is a US-only play, so I don’t care how many trillions of people in the galaxy use Facebook, only those in the US will determine the fate of this P2P initiative. So those of you using the “China Syndrome” logic (“there are a billion people in China, and if we can get 1%…”) to prove Facebook’s potential here, stop quoting global usage numbers. To be fail, Brian doesn’t say that. He does say, however, “one can easily assume that a vast majority of the 25 million micro-merchants would have at the very least a personal Facebook account.” That might be true, but that doesn’t mean they have Facebook pages for their piddly-shit little–oops, I mean micro–businesses.
2) Of the US-based consumers using Facebook, you’ll have a tough time convincing me that boomers and seniors are going to make p2p payments on Facebook. For my generation (Boomers), Facebook is used to creepily connect with former high school classmates from 30 years ago to my generation, and to spy on our kids. Well, there’s goes that segment, and we account for a lot of the P2P volume.
3) Of the remaining people, some (many?) won’t give their account information to Facebook. You better believe I’m telling my kids to not give that information over. Whatever the number is, that’s just more P2P volume that won’t see its way to Facebook.
4) Facebook’s renowned customer service department will be there to take care of any problems that may arise. OH WAIT, FACEBOOK DOESN’T HAVE CUSTOMER SERVICE. So much for repeat payments after somebody encounters an issue.
I saved the best two arguments for last:
5) The predominant use cases for P2P don’t lend itself to Facebook. Have you seen the numbers? Do you really know what use cases are the most prevalent for P2P payments? No? Then how can you be so optimistic that the company will transform the payments world? Far and away, the most prevalent use cases for P2P payments–from a transaction perspective–is gifts. You really going to give your grandson a birthday present by transferring funds through Facebook? The use case most prevalent from a dollar perspective is financial support (of which alimony is a significant percentage). A lot of other P2P use cases happen in the moment, like splitting bills and repaying purchases. My assertion: The winning mobile wallet will be the more likely place for P2P payments to originate, not Facebook.
6) Brian refers to studies that PayPal has done. Well, I’ve done some of my own as well. And here is what nobody seems to be taking into account: Nearly half (46% to be exact) of the P2P payment transaction volume in the United States is intra-family. Will family members give their account information to Facebook in order conduct P2P transactions? No. On top of that, nearly one in five P2P payments are between friends (which is probably where Facebook’s real opportunity is). At best, micro-merchant payments disguised as P2P payments account for just 23% of the roughly $900 billion in P2P payments made in the US.
BOTTOM LINE: When you take into accounts arguments #1 through #5 above, there’s just one conclusion to draw: Facebook’s path to P2P dominance is anything but guaranteed, whether we’re talking about the pure P2P market or the micro-merchant-disguised-as-P2P market.
***
If you’re thinking Facebook’s initial foray into US-based P2P payments is just a warm-up for a global play, think again. Although the cross-border opportunities are indeed huge, you have to look closely at the nature of the remittances originating from the US. While a good portion of the people sending the money may be young, educated, Facebook users, the recipients are often their parents and/or family members back home who may not want to use Facebook to receive payments. Much of the cross-border remittance volume is repeat volume—these people get used to using a method that works for them (i.e,. Western Union, MoneyGram) and changing their behavior is tough. Oh, and there are regulatory and compliance issues. And oh yeah, there are a ton of start-up competitors in a number of geographies and corridors learning how to capitalize on these opportunities. I guess they’re all just going to roll over and play dead because Facebook wants the business.
***
Brian’s argument regarding the appeal of no-cost (to merchants) payment method is spot-on. But there is a problem with this argument. Since many micro-merchants are only first getting into the card business (thanks to the efforts of firms like Square and Intuit), a meaningful percentage of their business is still cash and checks. Which are interchange-free methods of payment.
For some–if not many–micro-merchants to aggressively want to steer their customers to Facebook Payments, card-based payments must first become a much larger percentage of their transaction volume. And if regulatory efforts continue to knock down interchange rates, the impetus for pushing Facebook payments isn’t as strong.
***
There’s another hurdle Facebook will have to deal with. It’s the problem faced by any company who provides a service to one set of customers which gets paid for by another set of customers.
If you don’t think this is a problem, then you probably don’t have health insurance, and you’re probably clueless as to why college now costs $40-$50k per year (thank you, student loans).
Facebook is offering P2P payments for one very good and important reason: To drive advertising.
How does P2P payments drive advertising? By capturing Facebook users’ account information, it will be able to achieve exactly what Brian envisioned: Executing large-merchant and retail payments. The reason that drives advertising is because it helps address two issues large merchants have: 1) They have no idea which of their advertising efforts really drives sales, and 2) They incur an annoying little fee on the card-based transactions they take.
With a payment executed by Facebook, Facebook is able to prove to retailers and merchants that their advertising efforts on Facebook worked. Smart marketers call this attribution. Attribution is one of the three biggest issues facing marketers today. You’re free to argue amongst yourselves about what the other two are.
In a world where Facebook has a significant number of users’ account information, it can improve its clients (the ones who pay, namely merchants) marketing effectiveness and payment efficiency.
The problem is that P2P payments is one tough path to get there.
***
I’ve resisted the urge to say that Facebook P2P Payments is DOA, and that it should tell MCX to move over and give it some room in the payments cemetery. One reason for this is that I believe that David Marcus has access to, or has seen in the past, the real data (that being my study) regarding P2P payments in the US. And even if that’s not right, his experience at PayPal has had to have taught him that this is no easy market to capitalize on.
And I hope Brian Roemmele doesn’t want to pick a real fight if I ever meet him in person.