Where can Meta go next with payments after its Novi wallet's failure?

Meta appears to have failed for a second time to build a digital currency, but it isn't backing out completely from the payments industry. It is instead leaning on its massive scale, authentication and a bullish outlook on emerging internet innovation to compete with traditional banking. 

Meta, which was formerly known as Facebook, earlier this week announced it is closing Novi, the digital wallet that was a key part of Diem, a Facebook-affiliated stablecoin that failed to launch following three years of regulatory scrutiny, suffering a similar fate as Facebook Credits, a form of digital currency which sputtered more than a decade ago (Silvergate Capital took over Diem's assets in January).

Meta referred questions about Novi to a blog post recently written by Stephan Kasriel, Meta's lead for commerce and financial technologies. The blog post was designed to announce a rebranding of the Facebook Pay app to Meta Pay, but it also lays out an agenda to use enrolled credentials, biometrics and decentralized web tools to support a digital wallet that links directly to shopping online and in person, and executes money transfers, payments and other financial services across multiple platforms and accounts.

"We are in the very early stages of scoping out what this wallet experience might look like, but we’re aiming to build something that puts power in people’s hands in a way that hasn’t been done before," Kasriel wrote in the blog. "Just imagine if you could sign in once online to experience any corner of the metaverse, and everything you’ve ever bought digitally is right there with you."

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That's similar to the strategy behind Diem and Novi, which aimed to build a payment protocol that used a stablecoin and a blockchain to deliver a menu of payments and related financial services and increase financial access to underbanked people via a Facebook-affiliated super app. In the case of Meta Pay, the company is offering a digital wallet that will allow people to have what Meta calls a "portable identity across the metaverse," which would facilitate transactions in all digital environments available to Meta's 3.6 billion users as Meta Pay expands globally following an initial rollout in the U.S. 

Meta Pay is designed to embed payments inside Facebook, WhatsApp and Instagram, using authentication and enrollment credentials from these platforms. It evolved out of Facebook Pay, which debuted in 2021 and exists as an option alongside other payment choices. It's a more subtle approach than driving the development of a new cryptocurrency, and as such has not drawn the controversy of some of Facebook's other financial services ventures. 

Meta Pay has the potential to be a payments mechanism in the metaverse, an immersive internet experience commonly associated with Meta's own virtual reality platform. Meta is reportedly planning to release a Meta Quest Pro headset as an update to its current Quest 2. However, experts predict that payments in the metaverse will likely be decentralized to accommodate multiple platforms. 

Meta Pay's strategy also takes advantage of the ongoing trend toward using stored credentials to check in and automatically execute payments at the end of a shopping experience, a seamless process similar to paying for a ride with Uber. By offering an invisible payment for marketplaces, metaverse applications and other functions such as digital mortgage closings or insurance payouts, Meta could threaten banks and other fintechs. 

Metaverse applications using Meta Pay and offering biometric authentication with a retina scan, for example, could leapfrog over the existing mobile wallets and especially banks, because pre-authenticated, biometrically validated actions can be used to authorize more than just payments, according to Richard Crone, a payments consultant. 

"For example, notary services could be supplemented, if not completely eliminated, by authorizing documents virtually in a virtual reality or augmented reality headset with Meta Pay," Crone said. "Another example would be using blockchain, where all the parties to a transaction could see the adjudicated actions in a workflow as in B2B invoicing, medical billing, affidavits, legal proceedings and the like."

The use of a decentralized blockchain to support the digital ID would also make it easier to use the ID for authentication in multiple venues, supporting financial inclusion, Kasriel argued in his blog post. 

"The 'Facebook Pay to Meta Pay' [move] is less to do with facilitating payments in the metaverse, though it's certainly designed for that," said Sarah Grotta, director of the debit and alternative products service at Mercator. "But the pivot point is Facebook is considering how its app can become a super app in the real world."

Other financial services uses for the metaverse are at an early stage and include demonstrations of new payment technology, incentive marketing for virtual travel and a Mastercard project tied to Pride Month. 

Meta, which rebranded from Facebook in part to evoke the concept of the metaverse, is starting its wallet services with early-mover use cases typical of the metaverse, including a marketplace for digital collectibles and NFTs. But it's also looking at more traditional payment functions such as consumers paying for items on an e-commerce site, a use case similar to mobile wallets such as Apple Pay. Other payment types include transactions at brick and mortar businesses based on biometric check-in and links to an existing e-commerce account (similar to Amazon Go); or executing a peer-to-peer transfer based on a stored identity, a model similar to Venmo or Zelle.   

Meta additionally plans to offer data storage for all items that a consumer has purchased, gifted, donated or received, as a way to add a suggestions for recommendations function based on prior purchases. Meta contends there is a market for metaverse-driven commerce, citing research from Analysis Group, which reported it could add 3% to global GDP by 2032, or a $3 trillion contribution, if it evolves at a similar pace to mobile commerce. 

Virtual reality and augmented reality represent the next wave in payments for fintechs, Crone said, adding winning for any participant will require industry-specific focus to reengineer legacy applications in advance of other big technology competitors, such as Amazon, Microsoft, Alphabet/Google, Meta/Facebook and Alibaba.

"The types of goals that Meta has for Meta Pay — such as better ways to securely manage a user's identity, tracking activity and facilitating payments —  are all things that could be used before the metaverse evolves, assuming that it does in a material way," Grotta said.