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–topurchase 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’scredit system puts a scrip between your dollars and your purchasablegoods. Naturally, it’s pegged to the dollar: 10 credits equals one U.S.dollar. Some tech pundits have already begun asking whether Facebookhopes to be the de facto virtual wallet for its 200 million users, andwhether Google Wallet and other online payment companies are going totake this laying down. But more important is another question: ifFacebook becomes the de facto online wallet, will Facebook Creditsbecome the de facto online currency?
That might sound fatuous, but Mark Zuckerberg has said that he predictsa 70% uptick in revenue for 2009 over 2008 for Facebook–and that moneyhas to come from somewhere. It’s certainly not going to be advertising,with Facebook’s terrible click-through rate, and Beacon proved it’s notgoing to be social merchandising, either. Facebook may be pinning itsfuture success on acting as a go-between for users and merchants, andcharging a small fee for hosting the transaction. (Below, a Facebooktransaction, courtesy of TechCrunch.)
But if Facebook implements their payment system in the US alone,they’ll be missing a huge slice of the pie; only about 30% ofFacebook’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 Creditpegged to the dollar, this isn’t going to work out well for SouthAmerica, Eastern Europe, much of Asia, and, well, anyone who isn’t inthe EU. To make items reasonably priced, they’ll have to peg theFacebook Credit to a basket of currencies. If you buy something as aFrench Facebooker, your credits will be pegged to the Euro. If you buyas 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 validacross several verticals. As Rutherford says, other onlinecurrencies have existed before–social network Hi5 has coins, Microsofthas Points, and Second Life has its own virtual bank. But never beforehas any one scrip shown the potential to reach so many users, with thepotential to buy so much stuff.
I’m not an expert on numismatics, so there are probably moreramifications to this scenario than I’m acknowledging. But withFacebook Credits having different exchange rates all over the world,users will be able to hedge currencies, gain currency advantages, andbuy and sell according to the currency markets. I’m not saying this isa bad thing; should Facebook Credits gain real gravity and themarketplace expand to real goods and services, there will be money tobe made. But by making itself a marketplace and an issuer of scrip,Facebook may have invited a more complex economy than it everintended.
Add to that issues of security, and the whole concept becomestroubling. Facebook has had problems with its application approvalprocess as recently as twoweeks ago, and can’t seem tokick its recent rout of phishingattacks, either. If you look ata company like PayPal, with its legions of account officers, its FortKnox-level online security, and its IRS-like tenacity, you start to getan idea of the seriousness of the Web payments business. PayPal managesover 70 million active accounts, and safeguards the financialinformation for another 100+ million inactive ones. With 200 millionusers of its own, Facebook is going to need an internal PayPal of itsown, and that’s a hard department to conjure from scratch–even forSilicon Valley’s golden boy.