Should WeChat About Facebook’s New Wallet?

Facebook is best positioned to develop the North American eWallet and can start with its Events platform

Facebook is best positioned to develop the North American eWallet and can start with its Events platform.

The Perplexing Plunge

What transpired after Facebook released its latest quarterly earnings report left a lot of people scratching their heads. Despite posting revenue growth of 56 per cent and net income growth of 166 per cent, Facebook’s stock plunged by seven per cent and is projected, by one analyst, to fall by as much as 30 per cent. To bearish investors, the justification behind the price drop is less of a, “What have you done for me lately” question, and more of a, “What are you going to do for me tomorrow” problem. Comments made by CFO Dave Wehner indicate that Facebook expects to “See ad revenue growth rates come down materially”. A slowdown in ad revenue growth is worrying, especially for a company that made 95 per cent of its revenue from advertising in its last fiscal year.

While advertising revenues are expected to continue contributing to the majority of Facebook’s top line, Facebook needs to look at other monetization strategies in order to diversify revenue. Recent partnerships with Shopify in Facebook Messenger, as well as the rollout of business chatbots on Messenger, cement Facebook’s ambition of becoming a major e-commerce player. But to truly solidify Facebook’s position in the competitive e-commerce market, Facebook needs to introduce a social media eWallet so that the entire consumer buying process becomes integrated into Facebook’s platform and ecosystem. To successfully create a “Facebook Wallet”, Facebook should look East and learn from Tencent, which owns WeChat.


Since its creation in 2011, WeChat has grown from a simple messaging app into what has been referred to now as a super app. WeChat realized early on that continued growth could be stimulated by moving laterally into other markets such as video games, payments, and banking. Its most striking and groundbreaking innovation was the introduction of WeChat Wallet in August of 2013, which wholly transformed the way Chinese consumers interacted with money.

If there was a city where residents could hail a cab, pay for groceries, send money to friends, order products online, and request a bank loan – all conveniently in a single app – most people would be thinking of cities like New York, Chicago, or Los Angeles. Instead, it is in Shanghai, Beijing, and Hong Kong where the cashless economy has truly come to life. WeChat Wallet has the ability to make cash and coins obsolete and in the process diversified Tencent’s revenue streams.

Facebook is not an American version of WeChat, nor can it become one. Facebook is fundamentally different than almost every other company because, as founder and CEO Mark Zuckerberg has stated, Facebook’s focus is on building communities, with the ultimate goal of becoming the identity infrastructure of the planet. With around 1.79 billion monthly active users, Facebook has succeeded in its goal. While this is a difficult feat to quantify, an idea called “degrees of separation” can provide insight into Facebook’s success. Researchers at Facebook and the University of Milan announced that users on their platform are only separated by 3.7 immediate friends, vastly reduced the theory of six degrees of separation where there are six people between any two strangers. As the social network expands, the distance between any two individuals in the world shrinks. In effect, Facebook has brought the world closer together than ever before.

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To Zuckerberg, creating socially-interactive communities is only phase one, “Over the next three years, we’re focused on continuing to build our community and help people share more of what matters to them. The next five years are about building our newer products into full ecosystems, developers, and businesses. And in the ten years, we’re working to build new technologies to help everyone connect in new ways”. Facebook Wallet’s functions will add more value to Facebook’s communities by creating an integrated and connected e-commerce ecosystem among its products. If Facebook Wallet manages to penetrate and capture a dominant position in the battle to become the e-wallet of the West, then aggregating further financial technology services can become a paradigm-shifting way for Facebook to further connect communities and markets together in the future.

Warring eWallets

The eWallet of the East, WeChat Wallet, is what VP of Facebook Messenger, David Marcus, enviously expresses as simply “inspiring.” WeChat is a super app – it’s a Swiss Army knife that basically does everything all contained in one app. By rolling an extensive number of functions into one single app, WeChat has the ability to collect a staggering amount of personal data. It is precisely this kind of data that will be valuable to Facebook, as the company can use it to drive both its advertising and e-commerce revenues.

Unfortunately for Facebook, what worked in China for WeChat occurred in 2013 and in a much different market that cannot simply be copied into the American market. In 2013, Tencent introduced WeChat Wallet at a time when the eWallet payments market was largely dominated by Alibaba with their Alipay. By 2015, the overwhelming success of WeChat Wallet had allowed Tencent to capture over 20 per cent of the market share. With the way the Western eWallet landscape is shaping up, Facebook would not find success nearly as easily. This is due to the nature of China, unlike the West, haing a large population of unbanked customers coupled with a large number of smartphone users.

In 2015, the Chinese mobile transactions market more than doubled to $235 billion, surpassing the slower growth of 42 per cent in the U.S. market to $231 billion. As of 2016, more than half of WeChat’s 700 million users have been persuaded to link their bank cards to WeChat Wallet. Only nine per cent of all UnionPay cards, the largest payment card network in China, is categorized as credit cards and less than half of the population owns a credit card to begin with. In contrast, more than 70 per cent of Americans own at least one credit card. Because consumers still perceive credit and debit cards as being just as convenient for onsite transactions, digital wallets like Apple Pay, Android Pay, and WeChat Wallet will need stronger value propositions to displace entrenched card-based payments. Even those who have tried a mobile payment service do not use it regularly. Only 5% of people who have Apple Pay use it when they can. The percentage of people who use the service more than once has fallen from its peak a year ago and is now sharply lower than what had been seen at launch.

In the West, the fintech industry is highly fragmented. Without a system that dominates, the market has become incredibly disjointed, making it difficult for merchants to determine which systems to invest in. The hypercompetitive nature of the market has already drawn casualties. Amazon Wallet proved to be unsuccessful and was removed from the market six months after release. The developers behind these products have found that consumer are tired of installing apps to provide limited functions. Simply replicating that functionality in a mobile device does not add any additional benefit to the customer.

It is an extra step many are too lazy to take. EWallets in the West have also had a tendency to wrap themselves into their own platforms. Android users have Google Wallet, iOS users have Apple Pay; an app that can link across multiple operating systems, platforms and ecosystems will be far more robust and ubiquitous. Facebook has the ability to do that.

Incumbent eWallets have largely failed in the war of becoming the dominant market leader in the mobile payments industry. Facebook Wallet can avoid the mistakes these incumbents made by fundamentally differentiating itself with a competitive advantage that only Facebook itself possesses: its social network. Facebook Wallet is more than just replacing a physical wallet with a mobile credit card, it is the total and complete utility of being able to have one central digital wallet. This central wallet can aggregate all the fragmented FinTech specialities into one platform. These fintech services can leverage the existing social network, making it exceptionally easy to adopt. As a case example, a proposed partnership between Facebook Events and Tilt will depict how adding an eWallet service to a Facebook product would vastly improve the user experience.

Tilting Over

Facebook Events is a tool that is currently underutilized. The company wants to be able to monetize this application, but to do so, Facebook must first create a larger user base for Events. Although 650 million users have used Events, only 267 million users actively engage with a Facebook Event each month. The first phase in getting Events anywhere near monetization is to add features that offer small businesses and users more value.

Facebook should turn to Tilt in order to help build out Events into a more valuable tool. Facebook could easily create the crowdfunding technology in-house, in fact it already possesses a crowdfunding service for charities on Facebook collecting money for fundraisers. However, there are significant advantages to partnering with Tilt. 75 per cent of Tilt’s users are either in college or are recent graduates. Tilt has had trouble branching out to the more mature demographic, Facebook wants to keep the younger demographic; it is a perfect match. Facebook offers Tilt a social network platform to tap into 1.79 billion users. In the process, Facebook easily offers a new service to its eWallet, removes a growing competitor.

Ultimately, enhancing Events’ capabilities by integrating Tilt will add considerable value to Facebook’s platform. Attending social, cultural, and professional events that were funded by the entire community creates memories people attribute to Facebook’s help. Events brings people and communities together where they can, as a unit, fund memories.

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Facebook’s Promising Fintech Future

Creating a more frictionless user experience, and enhancing the interactions among communities is important, but eventually Facebook will need to monetize its eWallet.

Having its own eWallet will have a huge effect on Facebook’s ecosystem, especially with regards to e-commerce. Today, Facebook already dominates as a source of social traffic and sales. Facebook is already a huge player in the e-commerce space, with almost 67 per cent of Shopify sales directed from Facebook. Additionally, 85 per cent of e-commerce sales directed from social media platforms come from Facebook. Plus, an average of 85 per cent of all orders from social media come from Facebook. The possibilities are endless. Being able to message a friend about ordering lunch, having a chatbot suggest a new pizza restaurant, opening the restaurant’s menu directly on Facebook, selecting toppings and paying with Facebook Wallet, then giving the restaurant a review – all without once leaving Facebook’s ecosystem. Being involved in all steps of the consumer buying process is extremely compelling for Facebook.

Facebook Wallet will be able to succeed where other eWallets have failed. It will match the success that WeChat Wallet has achieved, but succeed in a different way, and it does not have to end there. After all, the financial technology industry is much larger than just payments and crowdfunding. Most fintech startups pick existing financial verticals, such as lending, investments, payments or currency transfer, and choose to stick within their four walls. Most existing fintech startups focus strictly on their area of expertise, whether it be payments, lending or investment advisory. However, what consumers need is a platform that is less fragmented and more convenient.

The next phase after Facebook Wallet is successfully implemented is to have Facebook become the aggregator of all the available fintech services. The Facebook Bank will be a platform where you can shop for different insurance rates, trade different investments, pay for new VR investing services on Oculus Rift, and give a loan to a developing entrepreneur halfway around the world. So far with its social network, Facebook has brought people within a distance of 3.7 degrees; with a social media wallet, Facebook can bring people, and the world, even closer.