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Pay With Facebook? No Thanks.

Facebook has begun testing a proprietary payment system with three of its applications, according to TechCrunch. As of this week, you can now use these apps—which include GroupCard, PackRat, Birthday Calendar and Facebook's own icon gift shop—to purchase things using Facebook "credits," which you can add to your account with an major credit or debit card.

Unlike other payment services like Amazon FPS or PayPal, Facebook's credit system puts a scrip between your dollars and your purchasable goods. Naturally, it's pegged to the dollar: 10 credits equals one U.S. dollar. Some tech pundits have already begun asking whether Facebook hopes to be the de facto virtual wallet for its 200 million users, and whether Google Wallet and other online payment companies are going to take this laying down. But more important is another question: if Facebook becomes the de facto online wallet, will Facebook Credits become the de facto online currency?

That might sound fatuous, but Mark Zuckerberg has said that he predicts a 70% uptick in revenue for 2009 over 2008 for Facebook—and that money has to come from somewhere. It's certainly not going to be advertising, with Facebook's terrible click-through rate, and Beacon proved it's not going to be social merchandising, either. Facebook may be pinning its future success on acting as a go-between for users and merchants, and charging a small fee for hosting the transaction. (Below, a Facebook transaction, courtesy of TechCrunch.)

Facebook credits

But if Facebook implements their payment system in the US alone, they'll be missing a huge slice of the pie; only about 30% of Facebook's user base lives in the U.S. at present. So to make real money, they'll have to go international. If they keep the Facebook Credit pegged to the dollar, this isn't going to work out well for South America, Eastern Europe, much of Asia, and, well, anyone who isn't in the EU. To make items reasonably priced, they'll have to peg the Facebook Credit to a basket of currencies. If you buy something as a French Facebooker, your credits will be pegged to the Euro. If you buy as a Russian user, your credits will be tied to the Ruble. And so on.

But as Lisa Rutherford points out in this excellent column at VentureBeat, any de facto online currency worth its bytes will have to be valid across several verticals. As Rutherford says, other online currencies have existed before—social network Hi5 has coins, Microsoft has Points, and Second Life has its own virtual bank. But never before has any one scrip shown the potential to reach so many users, with the potential to buy so much stuff.

I'm not an expert on numismatics, so there are probably more ramifications to this scenario than I'm acknowledging. But with Facebook Credits having different exchange rates all over the world, users will be able to hedge currencies, gain currency advantages, and buy and sell according to the currency markets. I'm not saying this is a bad thing; should Facebook Credits gain real gravity and the marketplace expand to real goods and services, there will be money to be made. But by making itself a marketplace and an issuer of scrip, Facebook may have invited a more complex economy than it ever intended.


Add to that issues of security, and the whole concept becomes troubling. Facebook has had problems with its application approval process as recently as two weeks ago, and can't seem to kick its recent rout of phishing attacks, either. If you look at a company like PayPal, with its legions of account officers, its Fort Knox-level online security, and its IRS-like tenacity, you start to get an idea of the seriousness of the Web payments business. PayPal manages over 70 million active accounts, and safeguards the financial information for another 100+ million inactive ones. With 200 million users of its own, Facebook is going to need an internal PayPal of its own, and that's a hard department to conjure from scratch—even for Silicon Valley's golden boy.

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