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.