3Q EARNINGS: Facebook Not Entering the Payments Business on Its Own

Facebook co-founder and CEO Mark Zuckerberg said during the company’s third-quarter earnings call Tuesday that he envisions Facebook as a collaborator and not a competitor when it comes to electronic payments.

SmartphoneStackOf100s650Facebook co-founder and CEO Mark Zuckerberg said during the company’s third-quarter earnings call Tuesday that he envisions Facebook as a collaborator and not a competitor when it comes to electronic payments.

During the question-and-answer period of the earnings call, Deutsche Bank analyst Ross Sandler asked:

Mark, I don’t think I heard you mention payments in the three-, five-, 10-year plan. There has been some speculation of payment offerings within Messenger. Can you give us a sense at a high level of what you’ve envisioned Facebook potentially doing in the payment space longer-term across merchant payments, consumers’ products like savings and lending or peer-to-peer? And then how do you see social interactions tied in with payments evolving? Does Messenger make payments better than what’s out there in the market?

Zuckerberg responded:

Payments is an important part of the online business ecosystem, but we’ve traditionally thought about this as something that we’re going to partner with other companies on to enable great solutions, rather than trying to compete and do it as a business ourselves. And the reason why we’ve taken this approach is that it’s very important for all online businesses and our customers and partners that there is a good online payment system. People run ads to get customers and sell products, and at the end of that conversion, if there is a good payment system that is smooth, then people will buy more things, which ultimately makes the ads and all of whole online flow more valuable for those partners and, therefore, more revenue and profit for our business, as well.

We view the ads part of the business as a more efficient part of the businesses than payments itself. Payments tends to be fixed-fee, whereas an ad, because of the option model, there is really good price discrimination built in. So a partner or business that is willing to pay us 30 percent of its revenue can bid that, and some of these willing to only pay 5 percent of the revenue can bid that, and the auction model inherently takes care of that.

So we think that focusing on the ads part is going end up being the more effective thing for us to do, but we realize that it’s important for the ad system over time for and for all of our partners for there to be a payment system, which is why we’re excited about partnering with credit-card companies and partnering with PayPal and all of the different folks doing online payments to make their solutions as good as possible as well.

Readers: What do you think of Facebook’s approach to payments?

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