Facebook’s “Ladder-Up” strategy for Crypto
“This is how a company accomplishes what, at the beginning, may seem impossible: a series of steps from here to there that build on each other. Moreover, it is not only an impressive accomplishment, it is also a powerful moat; whoever wishes to compete has to follow the same time-consuming process.” — Stratechery
Facebook has a clear path to integrating crypto across its product offerings, each step building on the last with two-sided network effects between end-users and merchants in the process:
- Give 2bn+ people a reason to use crypto
- Lower processing fees to motivate merchant adoption
- Move from “Sign in with FB” to “Pay with FB”
- Enable offline, low-fee payments, following WeChat’s playbook
Rung 1: Give 2bn+ people a reason to use crypto
Facebook has 2.2bn+ users across FB, Messenger, WhatsApp, Instagram — coincidentally, these form the recently restructured “Family of Apps” group under Chris Cox. That compares to tens of millions of crypto user globally. Facebook’s daily reach is 20x+ higher than crypto’s.
First, ZuckCoin becomes a new way to send P2P payments to any connection. Versus traditional payments, ZuckCoin processes with effectively no fees and faster clearing times. Suddenly, users begin to see their network as functional connections — they can remit money home on Messenger and pay friends for dinner on WhatsApp.
For the 1bn+ DAUs that live outside the US and Europe — over 67% of FB’s users — storing money in a ZuckCoin wallet could also be a more stable store of value than their local, more volatile currencies.
Rung 2: Lower processing fees to motivate merchant adoption
“Messaging can be a more transactional medium than feed. So I think what you’re going to start to see are people interacting with pages, maybe follow a page on Facebook or Instagram. You see content from that page. You can click through or tap through to a message thread, and then you can either get customer support or complete a transaction or do a follow-on transaction.” — Zuckerberg
Next, those same users start to possess more ZuckCoin. They have the opportunity to liquidate those tokens into fiat, leveraging Facebook’s existing global payment network. This network, bolstered by their ads and marketplace businesses, can accept payment in over 50 currencies, and partners with Transferwise to facilitate global pay out rails. But with enough native FB use cases, there’s less reason to transfer into fiat.
With Facebook’s 80m+ businesses across the world, it’s easy to imagine organic transaction opportunities across ad units, customer service touch points, and brand pages. For example, a user could click through a targeted ad directly to purchase and pay with one easy button —immediately delivering a superior user experience and clearer merchant attribution.
Why would the merchants want that? Well, for starters, e-commerce businesses already operate on incredibly lean margins. For companies that are striving to hit single-digit profit margins, 2–4% payment processing fees are material. A blockchain-based coin could lower fees via Facebook to basis points, giving the merchants full percentage points of profit back.
Those retailers are suddenly incentivized to promote ZuckCoin as their preferred payment method — they can offer bigger discounts and loyalty rewards to that audience. With a clear margin motivation, merchants actually become ZuckCoin’s biggest advocates.
Rung 3: Move from “Sign in with FB” to “Pay with FB”
Today, “Sign in with FB” is by far the most common account sign-up and log-in flow. Tomorrow, “Pay with FB” could become the most common payment flow, piggy-backing on top of the existing FB authentication widgets across the web/mobile.
Online merchants care deeply about 3 problems:
- Basket abandonment rate
- Payment processing fees
- Fraudulent charge rates
They want to minimize all three. Paying with FB should, in theory, address that:
- Since sign-in with FB is already 1-click and 1.5bn+ users would potentially have stored ZuckCoin credentials, it would be much faster to complete a purchase than manually entering shipping and CC info.
- As mentioned in the previous section, processing fees could drop by an order of magnitude.
- Because Facebook has logged-in users with rich identities and social graphs, it should have the data to decrease fraudulent charges.
Consumers crave lower friction payments, merchants want higher margins and less fraud, and FB can provide both across the web and mobile apps — making for a massive potential payment opportunity.
Rung 4: Enable offline, low-fee payments, following WeChat’s playbook
Lower fees are equally appealing to merchants offline, which still account for 90%+ of retail spend.
Similar to WeChat’s approach in China, Facebook could build POS-integrations for “Pay with Facebook” in the ROW. For the 2bn+ people with a FB-owned app on their phone, they could simply open that to get their profile (QR)code to pay at checkout.
Imagine how transformative this could be — massive retail industries like groceries, which have a 1.6% net margin, could more than double their net revenue, getting 200bps of processing fees back.