Facebook is now starting to hit physical limits to its digital growth. Three quarters of the company’s revenue are coming from North America and Europe where user growth is slowing down. Facebook’s average revenue per user in the “rest of the world” region, which includes many developing nations in South America and Africa with highest user growth rates, is 10 times lower than the average revenue per user in North America ($0.90 vs. $9.30 per user respectively). To grow its business in emerging economies [tweetable]Facebook needs to look into business models beyond advertising and app installs[/tweetable].
Signs are that Facebook is preparing its next pivot. Piecing together Facebook moves and hires, we believe that [tweetable]Facebook will be launching a social marketplace combined with financial services[/tweetable]. This will unlock new multi-billion dollar markets in the world’s fastest growing economies. A pivot which could be 10 times bigger than its pivot to mobile, which since starting in 2012 was responsible for 76% the company’s ad revenue in Q2 2015.
From social network to social marketplace
BuzzFeed recently reported that Facebook is experimenting with building out shops within Facebook Pages. E-commerce shops within Facebook pages will turn the social network into a humongous social marketplace where the entire shopping experience will occur within Facebook — from product discovery to checkout.
Facebook has created a sprawling mobile messaging empire with its Whatsapp, Facebook Messenger and Instagram apps – reaching 800M, 700M and 300M active monthly users, respectively. In doing so, Facebook is not leading, but following. Facebook is copying the business model of WeChat, Line and KakaoTalk, the asian social messaging apps, which proved that mobile messaging can be monetised through e-commerce. WeChat, Line and KakaoTalk evolved into all-encompassing ecommerce platforms where users can shop for everything from stickers and games, to groceries and cars, and even book taxis and flights.
Instagram is already used by people to sell everything from goats to art, and Facebook should be able to turn it together with Messenger and Whatsapp into powerful mobile e-commerce platforms.
Adding payment services to Facebook’s messaging empire makes perfect sense. David Markus, who left the position of Paypal CEO to lead Facebook messaging platform, said in his interview to Wired:
“VOIP is just one way that the company hopes to use the messaging app as a platform for much bigger things, including online payments.”
In March 2015, Facebook unveiled a US-only peer-to-peer payment service for Facebook Messenger that lets you connect your Visa or Mastercard debit card and tap a “$” button to send friends money on iOS, Android, and desktop with zero fees.
From Internet.org to Bank.org
For now, the Facebook payment service is an extension of a traditional banking service. But what about the countries where Facebook pushes its Internet.org initiative for affordable Internet access? To make payments work in countries without established banking services Facebook needs to create its own “backroom” infrastructure for “storing” money and become a digital bank.
The initial opportunity for Facebook is remittance services – a global $583 billion market controlled by Western Union and MoneyGram. But this is just the beginning.
A bank is a financial intermediary that accepts deposits and channels them into loans, where banks make most of their money. In other words, [tweetable]a bank is a platform connecting customers that need credit with customers that have capital surpluses[/tweetable]. To be successful, a bank needs to manage risk and minimize defaults.
Financial services in emerging economies require new business models and approaches to managing risk. For example, InVenture runs a Mkopo Rahisi service in Kenya that with the help of an Android app creates a reliable credit score by analysing more than 10,000 data points from the activity on a customer’s mobile handset. Instead of giving this score to banks, InVenture services the loans independently. Shivani Siroya, founder & CEO of InVenture writes:
“Since our app launched in Kenya last spring we’ve provided millions of dollars of loans to tens of thousands of customers. Our repayment rate is at more than 85% and more than 90% of our borrowers come back for a second, third, fourth, even fifth loan.”
Facebook’s ability to manage credit risk based on information from its social network would be second to none. Imagine how big such lending service for the unbanked can become at Facebook scale!
Facebook was always an interesting company to watch. It could well happen that Facebook’s advertising and app install businesses that get so much attention today are just a stepping stone to a much bigger ambition. The ambition of becoming the ecommerce and financial infrastructure for the world’s fastest growing economies.