Meta has a new plan for payments

Mark Zuckerberg, avatar
Meta CEO Mark Zuckerberg interacting with the avatar he uses in virtual reality.

Mark Zuckerberg — or rather, his avatar — excitedly extolled the potential of a virtual marketplace earlier this week on Meta video, giving the world a first glimpse of the company's plans for payments after it sold off the assets of its Diem stablecoin.

The market may be virtual, but the money can be real. Meta (formerly Facebook) is testing a payment mechanism that will enable creators to sell virtual assets and other content on Horizon Worlds, which is Meta's virtual reality environment that launched in December. Its fees exceed those that Apple and Google charge for their app stores, so Facebook will have to convince developers that its virtual world is worth the price of admission.

“The selling of virtual assets is a proven revenue model, so you can understand why Meta is testing it — particularly as the organization looks for new revenue streams that don’t rely on capturing customer data for advertising," said Danny Stefanic, CEO and founder of MootUp, a Phoenix-based virtual events platform. "Users will build experiences in Horizon Worlds, and Meta will probably have the rights to remove their stuff too — and the best creators will bring the audience," Stefanic said.

The model allows Meta to be the gatekeeper of its own "metaverse" while taking a cut of the revenue generated by others' efforts, according to Stefanic. Meta is planning to take a cut of more than 47% for metaverse sales, including a hardware platform fee of 30% for sales through the Meta Quest Store and a 17.5% fee for Horizon Worlds. "That’s a significant percentage and means you will need to sell a quarter more to get a full return," Stefanic said.

In the video, Meta CEO Zuckerberg said the ability to sell virtual items and access to virtual worlds is a new part of e-commerce. Other potential moves include a new virtual currency, non fungible token sales and small-business lending, all areas of increasing interest to large payment companies.

"Meta could provide numerous services to sellers and others on its platform," said Daniel Keyes, an analyst at Javelin Strategy & Research in New York. "It's not as strong as if [Facebook's] Diem were a success, but there is potential."

Since Meta debuted its VR headset, the Quest, the company has enabled a wide range of entertainment options that go beyond virtual gaming and social settings. Users can attend concerts, sporting events and stand-up comedy in virtual seats that are mixed in with the real crowd via a special camera set up at the live venue.

Meta is additionally piloting an incentive program for creators in the U.S. Bonuses are tied to monthly programs in which creators are paid based on progress toward goals, such as time spent in virtual worlds. Meta may expand those goals over time to encourage creators to adopt new tools or features that Meta rolls out. Social tokens that are issued as incentive for contributions to Facebook groups and small business lending are also reportedly on the financial services menu at Meta.

Other Meta initiatives include a virtual currency that would operate similar to an in-app token. The Financial Times reports the tokens would work similar to tokens in gaming apps such as the Robux tokens on Roblox, a popular online game. Roblox's revenue has expanded to $1.9 billion from $325 million over the past three years, according to Statista, suggesting the potential for income inside a self-contained virtual world.

Facebook has struggled with virtual currencies in the past. The Diem stablecoin was subject to nonstop regulatory and political controversy and never came to market, though Silvergate Bank, which was part of the Diem project and purchased the assets from Facebook, does plan to launch a stablecoin. And an earlier virtual currency called Facebook Credits fizzled under low demand in the early 2010s. But that was before the success of Roblox and the maturation of the in-app purchasing economy.

This revenue model is similar to that of stored-value accounts such as the Starbucks Card, which is the foundation of the coffee chain's successful mobile wallet.

"The easiest method to introduce a payment scheme is to implement a closed-loop solution. This eliminates the majority of banking regulations as the funds are kept by the company and are represented as a liability on their books," said Tim Sloane, vice president of payments innovation at Mercator Advisory Group in Concord, Massachusetts.

Within a virtual environment these closed-loop funds can be used to purchase items and could also establish credit functions, Sloane said, In the virtual world the virtual currency could accomplish everything crypto does in the open environment, but with significantly less regulatory oversight. "In 2014 I suggested the Bitcoin platform could be used to establish a closed loop gift card program, and it still could," Sloane said.

Meta also plans a test of membership groups for NFT ownership and another test to mint NFTs, according to the Financial Times report. Zuckerberg said during this year's SXSW that Facebook's Instagram will soon support NFTs.

The card networks and other payment companies are expanding support for NFTs, either as a processing rail for purchases, or as a means of fundraising or incentive marketing. And the metaverse is of growing interest to financial institutions. Banks such as JPMorgan Chase and HSBC are working on metaverse services, while American Express and Mastercard have filed metaverse-related patents. The metaverse could generate as much as $13 trillion in yearly revenue and have more than 5 billion users by 2030, according to Citigroup.

In a statement from its public relations department, Meta said: "We continuously consider new product innovations for people, businesses, and creators. As a company, we are focused on building for the metaverse and that includes what payments and financial services might look like.”

Most of the pilot programs are designed to boost usage of existing and future Meta services. Meta is exploring “social tokens” or “reputation tokens,” which “could be issued as rewards for meaningful contributions in Facebook groups, for example,” according to the FT. The company is additionally developing traditional financial services such as small business loans.

Instagram Shops and Facebook Shops would provide a potential market for small-business lending, Keyes said, adding the feature would be an alternative to fintech small business lending services such as PayPal, Square and Kabbage, rather than a direct competitor.

"Social commerce is a big deal, but Meta would exist alongside other options," Keyes said.

For reprint and licensing requests for this article, click here.
Payments Digital payments Facebook Cryptocurrency
MORE FROM AMERICAN BANKER