Why building a new payment network is hard – even for digital giants

[Full disclosure – I work for Vocalink, a Mastercard company. We design, build, test and operate account-based real-time payments systems – our tech powers FasterPayments in the UK, PromptPay in Thailand and FAST in Singapore. However the views below are mine alone, not those of my company.]

This is a response to an article by Lance Ng re Facebook’s anticipated entry into the payments market. I think this article underplays the challenge of issuance AND acceptance.

It’s true, Facebook has a sizeable consumer issuance base when it comes to digital app usage across the footprint of Facebook, Messenger, WhatsApp and Instagram. However getting a meaningful number of customers to load a wallet and store value online is a challenge that most digital only payment companies have struggled with – most people don’t see enough value vs risk in holding digital wealth and cash out to their bank account on receipt.

With regards to merchant acceptance – i.e the ease at which you can just “tap your phone at the counter to pay” as referred to above – this is also a massive challenge to create from scratch. Most digital giants, Apple and Google included, have chosen to partner with card networks to enable open loop transactions due to enormous scale and ubiquity of card network acceptance with merchants. They’re making progress, but changing behaviour is slow. The tap and go aka “contactless” user experience also differs somewhat by market as different countries and merchants are adopting at different speeds.

Fundamentally, it all comes down to trust. Will customers and merchants trust Facebook to hold their money? Will regulators, if Facebook increasingly becomes a payment or deposit taking institution? Does Facebook even want to become regulated for Financial Services in a meaningful way? Is there a suitable regulatory framework for digital or crypto currency that Facebook can adhere to in each market that it wants to operate in?

Creating new payments schemes is extremely hard. A slightly different consumer or merchant value proposition, even with incentives, is rarely enough to move the dial significantly. The experience needs to be almost 10x better to get people to change their established patterns. Ubiquity is key on both the sender (payer) and receiver (payee) side of the transaction – without it you don’t have a suitable foundation to even try.