Analysts Expect Facebook Pay To 'Materially Improve Monetization'

Facebook, Inc. FB dabbled in fintech with Messenger payments, Instagram checkout and the Libra cryptocurrency, but it’s making a deeper play with Facebook Pay.

The new feature will facilitate e-commerce and peer-to-peer transactions across the company’s four social media applications using Paypal Holdings Inc PYPL and most credit and debit cards. Facebook and Messenger will roll out the system this week to support fundraisers, ticket sales, business sales and in-game purchases. Instagram and WhatsApp will receive the function at an undetermined date.

'Materially Improve Monetization'

“Having users with payment accounts will enable eCommerce (B2C), gaming, marketplace (C2C), services, and subscription sales (dating?) on Facebook’s apps, which we think could materially improve monetization,” Bank of America analysts led by Justin Post wrote in a note.

RBC Capital expects the feature to support “impulse shopping” — a draw for advertisers.

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Zuckerberg said in April that the company sees a “continuous spectrum” between commerce and advertising, the latter of which contributes about 98% of revenue. Facebook Pay is the first of many features meant to leverage that spectrum to diversify Facebook’s revenue streams.

However, financial services aren’t expected to supplant advertising as the company’s profit driver.

“Similar to some of Facebook’s competitors (Apple, Google), we do not expect a meaningful revenue contribution from transaction fees, though Facebook’s ecosystem does have the scale to eventually be a meaningful payment intermediary,” Post wrote.

What Zukerburg Sees

Facebook expects direct transactions to improve the platform value for businesses and “translate into higher bids for the advertising,” Zuckerberg said.

He expects to lean on advertising for some time but appreciates the optionality fintech offers.

“Over the long term, if payments become the really important part of what we do, we’ll have some options and choices about how we choose to have the revenue flow to us in the future,” Zuckerberg said in April. “But for the near term, the way that we’re thinking about it is offering as many of these things at cost and for free as possible to deliver as much value to small businesses and businesses around the world, and I would imagine that that will come and contribute to our business through advertising in the way that it has historically.”

You can check out dozens of up-and-coming fintech companies at the fifth annual Benzinga Global Fintech Awards on Nov. 19 in New York City.