Meta's Payments Potential
Meta's Payments Potential
When Can I Pay With My Ray-Bans?
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Recently, the FT reported that Meta is exploring buying a stake in Ray-Ban maker EssilorLuxottica. This was followed by Alex Heath at The Verge, adding additional information, stating that Meta is interested in buying around a 5% stake in the company. This would be a substantial investment given EssilorLuxottica’s market cap of circa $100bn - at the time of writing.
Meta has partnered with Ray-Ban to release two versions of its so-called smart glasses. The second version, released last year, was popular. In Meta’s recent earnings call, Mark Zuckerberg said that the outlook for this category had “improved quite a bit”, leading Meta to double down in this space.
The interest in this area was emphasised by additional info in The Verge. It was reported that Google had approached EssilorLuxottica’s leadership to discuss putting its Gemini AI in future Raybans. So Meta’s investment may be a way to cement its relationship with eyewear manufacturers and ward off the competition.
Yet what does Meta’s interest in smart glasses have to do with payments?
My thesis is that there’s a compelling case for Meta to get more involved in payments, and a new wave of devices and form factors can play a significant role. Meta is one of the few companies in the world that has a foothold in both hardware and software. Its position in hardware will grow over time due to its partnership with Ray-Ban smart glasses and its forthcoming AR glasses. Additionally, Meta has some of the most popular apps in the world. Most people in the world have an account on at least one of Meta’s flagship products, Facebook, WhatsApp, or Instagram - in many cases, all three.
Since launching Apple Pay, Apple has shown how hardware and software can come together to deliver innovation in payments.
For many people, Apple Pay and contactless payments are now synonymous. The growth of Apple Pay was discussed in a previous post in this newsletter titled How Apple Changed Payments. Apple Pay has grown from its origin in 2014, to now processing more than $6 trillion of payments per annum.
According to Capital One, Apple Pay’s 2023 revenue is due to be in the region of $4bn. This mainly comes from taking a small cut of each transaction - charged to card issuers. When reporting a legal case on this topic, Vixio mentions:
Apple requires card issuers to pay a 0.15 percent fee for credit card transactions whenever an Apple Pay transaction is completed on a US issuer’s card, and a flat 0.5 cent fee ($0.005) for debit transactions.
Apple’s total revenue for the financial year ending September 2023 was approximately $383bn. So Apple Pay contributes around 1% of revenue.
(Note that Apple Pay revenue is based on estimates. It sits within Apple’s Services revenue line, but it’s not broken out separately in financial reporting.)
Meta’s total 2023 revenue was circa $135bn. (Their financial year coincides with the calendar year.) Yet 98% of Meta’s income was from advertising sales. There’s the potential to build a payments ecosystem across both hardware and software, and contribute to diversifying the company’s revenue streams.
They do have an existing payment solution called Meta Pay. Meta Pay allows users to save a payment card within their Facebook account and, in some markets, also within their Instagram accounts. With Meta Pay, card payments can be initiated without users entering their full card details again.
But Meta Pay has been underutilised so far and has limited market presence. Although it is listed as available in many markets, it’s hard to find the use cases.
I struggled to find a way to use Meta Pay on Facebook or Instagram in the UK.
Shopify has an integration with Meta Pay, but this is only available in the United States so far. Brazil offers payments to businesses via WhatsApp, but the term Meta Pay isn’t used in any of the publicity.
Becoming Meta
A few weeks back, I was working from home. During my lunch break, I played table tennis with a friend. This was a game with us in separate locations. It took place in VR (Virtual Reality) via Meta Quest headsets. At the same time as playing the game, our headsets allowed us to partake in voice chat. It’s a great way to catch up with friends whilst having a novel - albeit light - workout without leaving home. As well as table tennis, you can find Zumba, Boxing, and High-Intensity Interval Training (HIIT) workouts across the various apps on the platform.
Back in 2014, the company then called Facebook paid $2bn to acquire Oculus VR. Facebook integrated the Oculus VR technology into its business and made this technology a core focus area, renaming the business unit Reality Labs in 2020. Taking influence from the 1992 book Snow Crash, the term the metaverse rose in popularity in the early 2020s. Coupled with concepts such as Web3, the tech world was abuzz with ideas of creating new virtual worlds. In October 2021, Facebook changed their company name to Meta to emphasise that the company was about more than social media.
Despite Meta going all in on the concept, the metaverse didn’t capture the public’s imagination. Meta’s Reality Labs division has lost more than $45 billion since the end of 2020 - when Meta first began reporting the business segment separately. This number is even more incredible when you consider that acquiring Oculus VR cost a mere $2bn! Part of the challenge has been defining what the metaverse is and who it’s for. When their name change was announced on X in 2021, Meta stated, “[we are] helping to build the metaverse, a place where we’ll play and connect in 3D”, yet it never caught on as intended.
In terms of the hardware itself, interest in VR headsets, as represented by consumer sales, has plateaued. Last week, the UK launch of the Apple Vision Pro (AVP) saw only one person queuing outside Apple’s flagship Regents Street store before opening time. This is hardly the sign of a successful product launch - especially compared to some previous iPhone launches, which saw people queuing overnight.
Analysts at IDC have estimated that most of those who want an AVP will have already bought one. With the current model, there’s limited room for further sales..
Of course, the $3,500 price tag doesn’t help, and there’s been a widespread feeling that the AVP hasn’t yet identified its target audience - Apple has consciously avoided games, which has been Meta Quest’s strongest point. Yet some developers are unbowed and believe the AVP will still bear fruit in the medium to long term.
Note: Apple does not consider the Apple Vision Pro a VR headset. Instead, it refers to the device as a “spatial computer”. But spatial computing is Apple nomenclature. Most tech experts classify the AVP as a Mixed Reality (MR) device, yet there is still some debate on this.
What hasn’t helped VR is that the technology is evolving fast. It might sound counterintuitive, but when an area of technology progresses so quickly, it can actually slow adoption. With Meta’s devices, not only did the name change from Oculus Quest to Meta Quest, but the latest device, Oculus Quest 3, is sold not as a VR device but as an MR device.
In addition to being able to use apps in an immersive VR environment, with the Quest 3, some apps have been specifically developed for MR. One example is PianoVision, shown in the video below, which provides a showcase of MR.
Part of the challenge with launching new technology is that it takes time to embed in the minds of consumers. Changing the product name - even subtly - and the functionality of the device evolving, means it’ll take longer to build awareness. This doesn’t mean any of these things are wrong per se, but it takes time to get used to a new form factor. Especially when the price tag is $500+, and it’s a device mainly for recreational purposes, at least at this time.
Consumers adopt technology based on whether something is fun to use, is it worth the money, what are the use cases? (A mix of novelty and familiarity is always best.) Consumers don’t need to know the differences of between AR, MR, and VR. Yet, at the same time, these terminologies are used as selling points. This is likely why Apple has avoided such acronyms - they’re not important for the end user.
Paying With Meta
From a payments perspective, I’ve found that when using a Meta Quest device, buying an app can be painful. There’s an app store which is accessed within a headset. But when a purchase is made within the headset, the user has to confirm the payment on their phone! This involves picking up the phone, opening the Meta Quest app and then confirming the transaction is legitimate within the app. Once this has been done, the user can then go back to the headset, and the app download begins.
There are a number of issues with this process as it stands. If a transaction needs to be verified on a phone, then this cannot be done while wearing a headset. Apple’s Face ID cannot authenticate with the face covered. So in order to wake up the phone, the headset needs to be taken off. Those who have used a Meta Quest headset know that taking a headset off and on isn’t frictionless. It can take a few moments to get the fit right each time the headset is put on.
This need to authenticate isn’t present in every market, and it’s not a necessity in the USA. However, two-factor authentication (2FA) is required in Europe and the UK due to the Secure Customer Authentication (SCA) rules, which emanates from the EU’s PSD2 regulation. Other markets, such as India, also require 2FA and more markets may mandate 2FA over time as a means of reducing fraud. The way that SCA has been implemented in Europe, online transactions require two of the following:
Something you know - Such as a password or PIN.
Something you have - Mobile app or a token device (authenticator).
Something you are - Biometrics.
The Apple Vision Pro doesn’t have the same issue as Meta’s devices. The AVP features device-level biometrics, so there’s no need to authenticate a transaction manually. Double-tap the button on the top of the device, and Apple’s Optic ID authenticates seamlessly. As Apple explains:
In the same way that Touch ID revolutionized authentication using a fingerprint and Face ID revolutionized authentication using facial recognition, Optic ID revolutionizes authentication using iris recognition. Optic ID provides intuitive and secure authentication that uses the uniqueness of your iris, made possible by Apple Vision Pro’s high-performance eye-tracking system of LEDs and infrared cameras.
With a look, Optic ID securely unlocks your Apple Vision Pro. You can use it to authorize purchases from the App Store and Book Store, payments using Apple Pay, and more. Developers can also allow you to use Optic ID to sign into their apps. Apps that support Touch ID or Face ID automatically support Optic ID.
With this in mind, Meta is missing a trick. Meta has the reach and scale in hardware and software to build a payment system similar to Apple Pay. For its own hardware, such as future Meta Quest devices, Meta Pay could be improved in a number of ways.
Biometrics - I noted in How Apple Pay Changed Payments that biometrics has been a game changer in making payments fast, seamless and secure. Apple has patents for Optic ID. But just as Google and Samsung offer something similar to Face ID, there will be other ways to build biometric authentication within a headset. Like the Apple Vision Pro, there should be no need to remove the headset to complete a payment - even if the market requires 2FA
Tokenisation - Tokenisation ensures that no actual card information is stored on a device. Apple created a tokenisation system for Apple Pay, described in detail on Jas Shah’s substack. Meta Pay can use, or build, something similar.
Partnerships - Apple requires every card issuer to sign a contract before launching Apple Pay. This is partly to ensure that issuers are technically able to support the solution and due to commercial arrangements. (As outlined at the start of this post, issuers are usually charged a fee per transaction for Apple Pay.) Meta could take the same approach and ask banks and card issuers to opt into Meta Pay, and promote it to their users.
As well as these suggestions at the product and customer experience level, there are regulatory changes which will bring new possibilities for Meta Pay.
Currently, only Apple Pay can use the contactless payment functionality on iPhones. This means no competitor to Apple Pay can be created. Recently, Apple reached a deal with European regulators to open up the iPhone’s NFC capability to third parties, an agreement sparked by a four-year antitrust investigation into mobile wallet competition.
PayPal, Square, and even Meta will be able to create their own Apple Pay-esque solution for iPhone. Besides the agreement with the European Commission, the UK’s PSR (Payment Systems Regulator) and the FCA (Financial Conduct Authority) are administering a call for information in this area. The UK could follow the EU’s lead in requiring Apple to open up its NFC capability.
The Future Of Meta Pay?
Some might say that Meta doesn’t have the scale with its Quest devices to warrant developing its own payment solution with a hardware component. However, as we saw earlier, there is growing enthusiasm for Meta’s collaboration with Ray-Bans. This product has had generally favourable reviews, and mixes the practicality - and style - of Ray-Ban sunglasses with the ability to take photos from the glasses via a built-in camera. However, these glasses are not considered AR or VR, but rather smart glasses with AI features. Over time the functionality of smart glasses will continue to develop.
If Meta were to develop a payment solution with biometrics, ideally, it would exist within products such as the Ray-Ban smart glasses. But it’s not likely that biometric technology can work within a standard-sized pair of sunglasses, or anything close to it. And form factors will not reduce in size as quickly as many consumers, and tech companies themselves, would like.
However, in the long-term form factors will converge. Meta Pay, sitting across all of Meta’s devices will be a long-term play to build a cross-platform comprehensive payments wallet. Benedict Evans agrees on the form factor point, but is sceptical when it comes to whether consumers are that interested right now:
As I’ve written a few times before, it’s obvious that the devices will get better, lighter and cheaper, but much less obvious whether that’s enough. How many people will care?
Consumers will care about new form factors when the design, functionality, and usability combine to make an appealing product. Devices need to feel natural, non-intrusive, and not weird. (Remember Google Glass?) This is hard to define, but when we reach that point, consumers will know, and sales will be the proof.
I’m speculating that the experience you can get with a VR, or MR headset, will eventually be replicable in a smaller smart glasses type form factor. Meta Ray-Ban smart glasses show how such devices can easily interact with day-to-day surroundings. Sunglasses are one of the few accesories that are regularly worn by all generations, and have practical as well as stylistic usage. But the payments side may take a while to get to the point where it’s seamless. Even if this level of convergence is a long way off, Meta Pay could get ahead of the curve and start growing Meta Pay now.
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Further Reading (Payments Culture)
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The EU’s AI Act is not in effect. Here’s what you need to know (QZ)
Meta’s Threads crosses 200 million active users (Tech Crunch)
The global chip war could turn into a cloud war (Financial Times)
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