Facebook: Building Up Its Payment Network

Summary

FB launched a store locator that tracks user store visits and purchases.The user data is highly valuable for merchants while the increase in network effect paves the way for FB to eventually expand in the mobile payment market.Remain bullish on FB.

Facebook (NASDAQ:FB) is launching a native store locator where users can search for stores around them. This is a significant step towards monetizing its mobile platforms (ie. app and messenger apps) beyond advertising and into the underpenetrated on-demand/mobile payment space. Given that FB is already testing payments in its messenger where users can book Uber, it comes as no surprise that FB is testing store locator so FB can strengthen its relationships with the offline merchants by providing a robust targeted location-based ad platform and drive payment revenue. I remain bullish on FB and continue to see the company being the hallmark of any long-term growth portfolio.

Because that FB is facing a maturing North America market in terms of user base and the need to exploit alternative revenue sources beyond social media advertising, local advertising, e-commerce and payments are the ideal drivers for FB in the developed market (see -Facebook: Runway Clear, Ready For Takeoff). Long-term implication could be expansion of this platform to international markets, thereby allowing FB to become a more relevant player in the Internet finance space. The recent introduction of store locator positions the company for the imminent O2O growth. This data is very useful to advertisers because it allows them to have a clear idea on how their ad budget is driving in-store purchases and traffic. Given that 90% of the retail sales occurs in stores, this is certainly an important tool for merchants given that FB will have all the key data such as user interest, shopping pattern and traffic routine. The service will be rolled out in the next few months and will address a key barrier that many businesses have on ad buying, making FB an even more powerful ad platform for local businesses.

While local advertising is certainly an exciting area for FB to expand, I think the bigger implication could come from payment revenue in the long-run. I note that FB is already testing local markets, which is essentially an e-commerce platform powered by FB groups. The feature allows FB users to browse and post items to sell across a variety of product categories such as auto, appliances, furniture, apparel, household, books and so forth. Additionally, the section includes a "Buy" and a "Sell" interface and ways for users to search across the marketplace with specific key words. Although the feature is still in limited test markets, I believe that a broader rollout to local merchants is inevitable and this could allow FB to drive its own proprietary payment platform, making FB a competitive player in the fast growing mobile payment market.

Moving into payment is an inevitable move for FB given its network effect. The idea of FB helping merchants to advertise their products to the users so they can transact over mobile devices and pick up later in-store is a logical extension of FB's ecosystem. This would make FB even more competitive than Apple Pay (NASDAQ:AAPL) or Samsung Pay given that these competitors do not have a comparable user database and ad platform. With a robust payment system, FB could eventually make the transition toward internet finance similar to what BABA, Tencent and Baidu (NASDAQ:BIDU) are doing in China (see - Alibaba: Setting An Example In Mobile Payments).

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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We have no business relationship with any company whose stock is mentioned in this article.

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