Facebook is making a foray into online payments with its new Facebook Pay service, the company announced Tuesday — and could be poised to take a big bite out of PayPal’s and Apple Pay’s business.
The new service rolls out in the U.S. starting this week on the flagship Facebook app and Messenger, and will become available on Instagram and WhatsApp down the road. The service can be used for fundraisers, in-game purchases, event tickets, payments between individual users on Messenger, and purchases from Pages and businesses on Facebook Marketplace.
IT-Harvest Chief Research Analyst Richard Stiennon said Facebook’s huge market penetration gives the Menlo Park-based social media giant the ability to dominate in markets, especially if Facebook Pay winds up being offered globally.
Stiennon said PayPal is “on the defensive” and may find that its transaction fees are a liability. The San Jose-based payments giant, which owns social payments service Venmo, made its own announcement on Tuesday — that its Xoom product would now allow users in the U.S. to send money domestically to family and friends for cash pickup at almost 5,000 locations nationwide.
PayPal spokesman Chris Morse pointed out that PayPal processes a majority of the transactions on Facebook’s platforms and will be supported by Facebook Pay, as will most major credit cards and debit cards.
“Facebook has been a longstanding and valued strategic partner to PayPal for several years and we continue to partner with, and support, Facebook in various capacities,” Morse said in an email. “We are pleased to collaborate with them on Facebook Pay, as we share a common vision to make the management and movement of commerce seamless, no matter where, or on what platform, people shop.”
Although the service is separate from Calibra, Facebook’s controversial blockchain product, Stiennon said Facebook Pay was likely a way for Facebook to test out the e-payment market.
“It’s going to be very dramatic,” Stiennon told the Silicon Valley Business Journal. “I think Facebook Pay is just the foot in the water to become a payment processor to challenge the hundreds of payments processors that have popped up.”
“People already use payments across our apps to shop, donate to causes and send money to each other,” Deborah Liu, Facebook’s vice president of marketplace and commerce, said in a statement. “Facebook Pay will make these transactions easier while continuing to ensure your payment information is secure and protected.”
She said users only have to enter their payment method once, and then Facebook will save the information for future transactions. Users will also have the choice to set up Facebook Pay app by app, or set it up for use across apps.
“That means we won’t automatically set up Facebook Pay across the apps you are active on, unless you choose to do so,” Liu said.
This also comes as Google announced that it will offer checking accounts starting next year. The program, called Cache, will work with several banks and credit unions to offer accounts and related services.