Facebook Pay was a digital wallet service introduced by Facebook in 2019 to enable users to make payments and money transfers across Facebook, Messenger, Instagram and WhatsApp. However, in June 2022, Facebook announced that it would be shutting down Facebook Pay and removing it from its apps within the next few months.
The shutdown of Facebook Pay comes as a surprise considering the big plans Facebook had for the payment service. When it was launched about 3 years ago, Facebook Pay was envisioned to become a major player in the digital payments space and help the social media giant expand its reach into e-commerce and financial services.
However, the service clearly did not take off as expected. The lack of adoption of Facebook Pay is evident from the fact that Facebook has decided to discontinue it despite making a huge investment. So why exactly did Facebook have to cancel one of its major initiatives in the fintech space?
Reasons for failure of Facebook Pay
There are a few key reasons why Facebook Pay did not gain much traction since its launch:
Limited awareness and usage
Facebook Pay was not used widely by Facebook users. According to estimates, less than 2% of Facebook’s user base in the US had actually used Facebook Pay over the last year. Most users were simply not aware that such a payment option exists within Facebook’s apps. The limited adoption shows that Facebook failed to drive awareness and usage for its payment service despite its large user base.
Stiff competition
The digital payments space already had several major established players when Facebook entered with Pay. Services like PayPal, Apple Pay and Google Pay have been around for years and dominate the market. Breaking into a space with such dominant rivals offering similar payment solutions was always going to be an uphill battle for Facebook Pay unless they offered something truly unique or innovative.
Privacy and regulatory concerns
Facebook has faced massive backlash in recent years over its privacy practices and policies. Users are much more apprehensive now while sharing their financial data with Facebook compared to a few years back. Regulators have also increased scrutiny on Facebook which makes rolling out a financial service even tougher amidst the increased regulatory attention.
Lack of clear value proposition
The core value proposition of Facebook Pay was never evident to users. It allowed users to make payments across Facebook’s platforms just like several other existing services. Users did not have a compelling reason to start using Facebook Pay when they were already comfortable using other payment apps and services for years.
The growth and shutdown timeline
Let us look at some key events in the short lifespan of Facebook Pay to understand the growth trajectory and why Facebook ultimately shut it down:
| Date | Event |
|---|---|
| November 2019 | Facebook Pay officially launched in the United States |
| October 2020 | Facebook Pay rolled out to more countries including Brazil, India and Indonesia |
| February 2021 | Facebook Pay enabled P2P payments via WhatsApp in Brazil |
| March 2021 | Facebook Pay becomes available on Facebook Marketplace |
| June 2022 | Facebook announces it will shut down Facebook Pay over the next few months |
As we can see from the timeline, Facebook Pay saw initial expansion in its first year after launch by entering some new international markets. However, the growth stalled thereafter with limited adoption. And around 2.5 years after its launch, Facebook decided to pull the plug on its payment ambitions.
How will the shutdown happen?
Facebook has said that Facebook Pay will be discontinued in phases over the next few months. Here is a look at how the shutdown process will unfold:
Users won’t be able to add Facebook Pay
New users will no longer be able to add Facebook Pay as a payment method for transactions. Existing Facebook Pay users can continue using it until it is fully discontinued.
Automatic recurring payments to stop
Any recurring or automatic payments that users may have setup using Facebook Pay will stop working in July 2022. Users will have to update their payment methods for any such recurring transactions.
Facebook Pay removed from apps
The option to send/receive money through Facebook Pay will be removed from Facebook, Messenger, Instagram, and WhatsApp apps. This process has already started in certain countries and will be complete globally by end of Q3 2022.
Outstanding balances
For any outstanding Facebook Pay balances, users will receive more information soon on how to manage or cash them out before the service shuts down completely.
Impact of shutdown
The shutdown of Facebook Pay after investing significant time and resources into it does impact Facebook in certain ways:
Wasted investment
Facebook had touted Facebook Pay as a key strategic initiative and invested heavily into it. The shutdown means all those investments have now gone waste.
Hits expansion plans
Facebook Pay was a key avenue for Facebook to expand into financial services and ecommerce. With its failure, Facebook’s growth plans in these areas take a hit.
Reputation impact
This shutdown casts further doubts on Facebook’s ability to successfully launch and scale new products beyond social media.
What happens to user data?
An important concern for users is what happens to their financial information and transaction data they have shared on Facebook Pay. Here is what Facebook has clarified regarding user data:
Account information deletion
Any financial data like user’s card details that was saved in Facebook Pay will be deleted. Users don’t need to take any action here.
Transaction history deletion
Facebook will also start deleting users’ Facebook Pay transaction history. This process may take few more months after shutdown to purge all data.
Data already shared
Any data already shared with third parties as part of payment transactions cannot be deleted by Facebook. This includes data shared with merchants, banks or payment partners.
So in summary, Facebook claims it will remove all stored user data related to Facebook Pay but not any data already shared externally as part of transactions.
Future of payments at Facebook
Does the shutdown of Facebook Pay mean Facebook is exiting payments completely? Not exactly. During the announcement, Facebook did say they will continue building payment capabilities focused on:
Commerce capabilities
Payments for buying products directly across Facebook apps will remain a focus. Facebook wants users to be able to checkout easily when making purchases, donations etc.
P2P via stablecoins
Facebook will explore other ways for payments between users. This could potentially involve use of blockchain and stablecoins.
Financial inclusion
Facebook will continue investing in payments focused on driving financial inclusion especially in developing countries.
So Facebook is likely to take a targeted approach with future payments efforts centered around commerce, emerging technologies like blockchain and expanding access to financial services for the unbanked population.
Conclusion
The shutdown of Facebook Pay comes as a surprise considering the ambitious plans Facebook originally had for it. However, lack of product-market fit, stiff competition and privacy concerns led to poor adoption. Facebook Grossly overestimated user need for a unified payment service across its apps. The failure of Facebook Pay shows how difficult it is to scale payments and financial services despite having a large active user base. Going forward, Facebook needs to thoroughly reevaluate its strategy if it wants to expand into fintech. And for now, the company is ditching its ill-fated unified wallet to focus on other targeted payment experiences across its family of apps.