Who We’re Watching in Payments 2012

by Russ Jones on May 6, 2012

in eBay, Facebook, Glenbrook Payments Education, Google Checkout, Google Wallet, Russ Jones

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What do eBay, Google, and Facebook all have in common? Sure, they all dominate their respective categories. And, yes, they all are hugely ambitious. Plus they all have demonstrated the ability to invent new markets. The other shared trait, in case you hadn’t noticed, is they are all in the payments business.

Not in the real payments business, you say. That’s right. They’re not switching transactions between banks. Heavens no. They’re too busy working out on the edge of the ecosystem, delivering payments “dial tone” to companies that just want to get paid. Here’s a quick look at what they’re doing in payments.

eBay. Who doesn’t know that eBay is in the payments business? PayPal reports that it handled $119 billion of payment volume for full year 2011, and generated $4.4 billion in net revenue. The company claimed a 3.71% take rate in its final quarter 2011, meaning that it kept 3.71% of every dollar that flowed through its payment network. And from this modest start, PayPal is now moving “offline” to the point of sale — and completely rethinking what consumers want in a digital wallet. In case you haven’t looked, PayPal is now competing in seven different segments of the payments industry.

Google. It’s relatively hard to see the payments business inside Google, but its there. We’re not talking about the Google Wallet initiative. Google doesn’t really have any economic interest in the payments component of the Google Wallet — their interest lies completely in the how offers can be delivered and redeemed at the POS. Google’s core payment capabilities for merchants are exposed through Google Checkout and Google In-App Payments. Javelin Research claims that only 9% of online users in the U.S. use Google Checkout, so we estimate there are about 20 million Google Checkout users in the U.S. market. But anecdotally, the use of Google Checkout has been growing in leaps and bounds with the growth of the Android Marketplace. So the user numbers might be larger. Like Amazon.com, Google Checkout uses the same fee structure as PayPal. Its also worth noting that Google Checkout and Google Wallet have been folded together and everything has been rebranded to Google Wallet. In fact, Google the phrase “Google Payments” and see what you get.

Facebook. Facebook Credits is the “virtual currency” reference point in today’s market. In the company’s recent S-1 filing, Credits is positioned as Facebook’s payment business. They say it generated $557 million in revenue in 2011, which implies $1.86 billion in purchase volume given their 30% discount rate for sellers. But they also publicly say they paid out $1.4 billion last year, indicating that their effective discount rate is closer to 25%. Importantly, payments represented 17% of the Facebook’s Q4 2011 revenue. Not bad for a payment system that just came out of beta in Q4 2010. Facebook also recently launched a limited test of “Facebook Credits for Websites” which we presume is the first step towards moving Credits beyond the Facebook platform out into the open market. And don’t even get us started on the number of potential users.

These are just a few of the companies we’re watching in Payments 2012. If you want to know more about what these companies and others are doing in the payments industry, join us for the a special “Payments 2012” workshop being held in May 15th, 2012 at the Santa Clara Tech Center. We’ll be exploring recent industry developments, our take on the key trends, and the next wave of payment enablers that we expect to be watching over the coming years. This is an advanced workshop for Glenbrook Payments Boot Camp alumni.

3 Responses to “Who We’re Watching in Payments 2012”

  1. Nice Article.. Couple of observations..
    1. My guess is that Amazon is one of the largest payment gateways in the US.. in fact, the third largest.. behind Visa and Paypal.
    2. Google(Checkout) may be the 4th largest.. they had a real good chance to do much better – with 0% processing fee sometime back..but they messed it!
    3. Facebook may not be able to offer non-virtual payments in the US anytime soon! If they do, they need to totally detach facebook credits with that.. But with such a huge margin in the virtual currency market, they may not even be interested in the real payments business.

    • Russ Jones says:

      Amazon’s payment business, delightfully called Amazon Payments, is part of the Amazon Web Services (AWS) business group. Amazon reported just over $48 billion in net sales for 2011, but actually enables much more payment volume than that number would indicate. The $48 billion is $42 billion of product revenue (goods sold directly by Amazon) and $6 billion of service revenue (to facilitate third party sales, AWS services, etc.)

      Because the $42 billion of product revenue only represented 64% of all goods, its reasonable to think that the other 36% represented another $24 billion of purchase volume that is handled by Amazon Payments, but not claimed as Amazon revenue. This $75 billion in on-Amazon purchase volume still doesn’t include off-Amazon sales enabled by the use of Amazon Payments on third-party merchant sites.

      Amazon doesn’t break out is payment business metrics like PayPal does, but does have a pricing structure that pretty much matches PayPal’s. And it now reports 164 million active buyers and 2 million active sellers. So you’re right. Amazon has some big numbers.

      – Russ

  2. Gene Willacker says:

    I think Google Wallet should be re-branded on the Android Marketplace as… Play Money.

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