One of the rumors circulating around Facebook’s new payments service is that the social media giant will not pay even 1 basis point to process payments.
While this is just an unlikely rumor, the scuttlebutt is indicative. It shows that: a) Facebook may have negotiated hard with the payments networks; b) the payment networks are increasingly finding themselves in a tough spot; and c) Facebook has kept its pricing deals hush-hush.
To refresh, last week Facebook announced that it was launching a new payments feature in its Messenger service. The service will reportedly be available to some Facebook users starting next month.
The Facebook payments feature is only for consumers right now and only for peer-to-peer transactions, for that matter. Most notable is the payments feature’s cost: $0.
That’s the cost for consumers, mind you. Facebook insists the payments feature is “focused on giving people a great experience,” and not on facilitating payments to business. But there is little doubt that FB will add commercial functionality to the payments feature.
Will that feature be free, too? Square Cash, for example, costs businesses 1.5% of the transaction amount. FB’s, meanwhile, is rumored to be considering a free service, or free for businesses that actively advertise on Facebook. Free, of course, is a tough price to top, and the presumption is that Facebook inherently will have a remarkable advantage by coming to market with that price and its audience.
But that advantage is contingent on the price Facebook pays for payment processing. Only MasterCard and Visa debit cards, or a bank account, can be utilized to make payments via Facebook at present. The fact that Facebook is tapping only the debit network for the payments feature is important, because FB’s wholesale costs there are lower than they would be for credit transactions.
How much lower? That’s where the scuttlebutt comes in. One source told us that Facebook is paying nothing for transactions of $2 or less. But there is also word out there that Facebook is paying zero transaction fees — for all transactions. If true, such a deal for Facebook would eclipse even the Apple Pay deal Apple negotiated with the major card issuing banks for a “card present” rate of 15 to 25 basis points.
To be fair, we cannot confirm the FB deal, despite our best efforts. Facebook officials didn’t even acknowledge the question with a “no comment.” MasterCard and Visa are mum — as are countless sources in the industry. As one source put it, Facebook has been using a “nothing to see here” payments strategy since David Marcus joined the company last summer.
Facebook “will consider” adding funding options “beyond [the] initial roll-out” of the payments feature last week, the social network told Bank Innovation. That means credit cards, for those of you who are texting while you “read” this post.
Facebook payments has some question marks surrounding it that could play into the negotiations to add the commercial component to its payments offering. Facebook has not exactly had a strong payments strategy to date. And the name of the game for retail payments initiatives like Apple Pay, Samsung Pay, SnapCash, and the like is increasingly centered on the number of credit cards on file. Apple has lots. Facebook, not so many. No matter what Facebook negotiates — and we hear it will meet with ISOs at next week’s Transact 2015 to talk commercial payments — that variable may be the ultimate determinant of success or failure.