Protocol | Fintech
The people, power and politics of fintech, every Tuesday and Friday.
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Why Facebook is still playing catch-up in payments

Phone screen with Facebook Pay

Hello and welcome to Protocol | Fintech! This Tuesday: Facebook plays catch-up, Stripe checks IDs and Elon Musk makes up with bitcoiners.

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The Big Story

Facebook plays catch-up

Here's Facebook's problem in payments: No one raps about Facebook Pay.

Hundreds of rap songs have mentioned Square's Cash App, and the pandemic only solidified Venmo's place in popular culture.

So it's understandable that Facebook is looking to catch up with its rivals in mobile payments. But the introduction of new QR code and direct-link features only highlights how far behind Facebook has fallen.

Facebook thought payment services were about friends. But it turned out paying strangers — rappers, entertainers, people in need — was the killer app.

  • Facebook launched person-to-person payments in Messenger in 2015. But you had to be connected as friends.
  • That same year, Cash App launched Cashtags, or usernames, to make it easy for people to solicit payments. That turned out to be a killer app for musicians and other entertainers. PayPal copied the feature with PayPal.Me links.
  • It wasn't until 2019 that Facebook expanded its payments from its Messenger app to Instagram and WhatsApp with the launch of Facebook Pay. The system enables person-to-person payments, donations, ticket-buying and Facebook Marketplace payments.

Better late than never. The QR code feature may not be a full-fledged Venmo killer, but it speaks to larger ambitions Facebook has in payments.

  • Now anyone can pay or request money using Facebook Pay — even those who are not Facebook friends. Anyone with Messenger in the U.S. — which is most of the internet-using population — can use it. They'll need to connect a Visa or Mastercard debit card, PayPal account or other method to access funds.
  • Facebook has been dabbling in payments for years. It formed a payments subsidiary a decade ago. Early on, it pinned its hopes on processing payments for Facebook apps.
  • Now, Facebook is hoping to enable commerce more broadly throughout its apps. That means making frenemies: It lets users use PayPal for checkout from within Instagram.
  • Getting more Facebook users to link a payment card is key. Once a user makes a person-to-person payment, the door is open for commerce.

The person to watch here is David Marcus. The former leader of PayPal joined Facebook to run Messenger in 2014.

  • Marcus took a detour into Facebook's cryptocurrency efforts, announcing the Libra stablecoin in 2019.
  • After predictable backlash from governments about the notion of a stateless digital currency backed by Facebook, launch partners like PayPal, Visa and Stripe jumped ship. The currency, now known as Diem, has retooled itself for a U.S.-centered launch.
  • Marcus took a new role at Facebook in August, running Facebook Financial, which embraces Facebook Pay and its Diem efforts.
  • One of the key moves Marcus made at PayPal was buying Braintree in 2013, getting its Venmo subsidiary as part of the deal.

The crucial question for Facebook is trust. People still upload their party photos. But will they hand over financial details? The same trust questions that dogged Diem will likely haunt Facebook's expansion into payments.

But consumers love convenience, and if it means being able to buy that cute hat on Instagram a little faster, Facebook Pay may still score. That's why little details like QR codes and payment links matter — as does letting go of Facebook blue-app dogma, like making everything run through your friends list.

— Tomio Geron


A MESSAGE FROM FUNDRISE

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From Protocol | Fintech

Stripe now has an ID verification tool. The payments software company introduced Stripe Identity, which it says will help businesses battle fraud and assist with regulatory compliance by verifying customer identities.

Overheard

  • "Stepping back, we would posit that these kinds of OCC entities are better thought of as 'national payments companies' or 'national lending companies,' or both, but not 'national banks.'" —A report from the Bank Policy Institute on proposed guidelines regarding how Federal Reserve banks would address nonbanks with novel charters.
  • "Crypto transactions are irreversible. I cannot reclaim a crypto transaction. I will only send money to recipients I trust. Elon Musk will not double my bitcoin." —A Shakepay app reminder, shared on Reddit and confirmed to Protocol as authentic by the company, to customers of the Canadian crypto exchange.
  • "Rather than truly democratizing finance, some of these innovations may exacerbate inequality. Unequal financial literacy and digital access might result in sophisticated investors garnering the benefits while the less well off, dazzled by new technologies, take on risks they do not fully comprehend."Cornell University professor Eswar Prasad on bitcoin, cryptocurrency and blockchain.
  • "If we already know that cash is knocking on its exit doors and that we have to move to cryptocurrencies, we have to do it securely."Dante Mossi, president of the Central American Bank for Economic Integration, which is assisting El Salvador in implementing a law recognizing bitcoin as legal tender, on the rise of cryptocurrencies.
  • "When there's confirmation of reasonable (~50%) clean energy usage by miners with positive future trend, Tesla will resume allowing bitcoin transactions."Tesla CEO Elon Musk on the company's plan to resume bitcoin transactions.

Need to Know

  • American Express is launching Kabbage Checking. The financial services giant will offer its first checking account for small businesses through Kabbage, the small-business financing company it acquired last year.
  • Goldman Sachs is expanding to ether. The Wall Street giant plans to offer options and futures trading in the cryptocurrency in the coming months.
  • MoneyLion disclosed investigations. The investing and saving app admitted to ongoing CFPB, SEC and state probes as part of its process going public via a SPAC.
  • Brazil is delaying its digital currency. The South American nation, which had said it plans to introduce a central bank digital currency next year, said the move will be delayed by at least one year.
  • Wipro named a banking veteran as chief information officer. The IT consulting and services giant said it has hired Anup Purohit, former CIO of Yes Bank and a 25-year veteran of the financial services industry.
  • Adyen got a bank charter. The OCC approved the payments company's U.S. branch license — four years after an executive said the company wasn't interested.

Deal Flow

4 Questions With...

Max Simkoff, CEO, Doma

What fintech trend are you most excited about?

I'm most excited about all of the innovation that's happening across proptech right now, specifically when it comes to improving real estate transactions and the home-buying process. Buying or refinancing a home is one of life's biggest financial decisions, but the process has traditionally been horrible: complicated, lengthy and overly expensive.

What fintech trend is most troubling for you?

I don't love mobile applications that gamify investing and encourage people to gamble away their life's savings. Gambling disguised as investing has the power to do incredible damage when people invest money that they can't afford to lose, and then do it again and again to fuel a casino-like rush.

What's been your biggest professional blunder, and how did it help you?

At past companies, there were times when I've fallen into the trap of believing that success is autobiographical, and found myself surrounded by others who thought too similarly to me. Over the years, I've come to realize how important it is to build a team with people who have diverse experiences, opinions and perspectives. It makes me a better leader and Doma a better company.

What fintech company — besides your own — have you been most impressed with this past year?

I'm very impressed with Hippo, and how the company is revolutionizing home insurance — something that's known for being extremely complicated, yet is clearly very important. Similarly to what we are doing at Doma, Hippo is leveraging AI and data-enabled technology to make something easier for homeowners, and I'm excited to see them continue to grow as we all work toward improving the industry as a whole.

A MESSAGE FROM FUNDRISE

Fundrise is a low-cost, tech-driven way to diversify your portfolio with private market real estate, an investment that has historically driven superior income streams and stability, without sacrificing return potential. They make investing in real estate simpler, smarter, and more effective than ever. Sign up for free today.

Learn more

Data Point

$995 billion

That's the projected total spending on "buy now, pay later" services by 2026, according to Juniper Research, which expects BNPL payments to reach $266 billion this year.

Thanks for reading — see you Friday!

Photo by
Chesnot/Getty Images.

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