As consumers wait, and analysts guess who will lead us into a world of virtual wallets and mobile payments, it may be the company that currently helps us post to our friends wall, tag them in photos and update our status. With over 600 million users, Facebook and their currency platform ‘Credits’ is poised to be the future of how we pay for both virtual and physical goods.
Introduced in May of 2009, Facebook Credits was originally designed as a virtual currency to allow people to make purchases within games and non-gaming applications with the Facebook platform. Much like Apple with iTunes, Facebook takes a 30% cut on every dollar spent through their Credits platform. Today users can buy Credits with 15 currencies, including U.S. dollars, Euros, the British Pound and the Venezuelan Bolivar.
Creating a social payment infrastructure
Currently Facebook Credits is still exclusive to their property, but the massive social network has slowly been introducing new features to integrate their credits system. From JC Penny’s ecommerce site within their Facebook Fan page, to connecting 60 million users across 80,000 websites each month through Facebook Connect.
Offering ways to connect with brands doesn’t stop there; they also offer brands and local businesses the option to offer deals through their Facebook Places platform, which allows users to check-in to locations. Just last week Facebook announced a Groupon-type competitor called ‘ Buy With Friends’ a feature that lets users who purchase virtual goods with Facebook Credits the option to share their purchases with friends within their newsfeeds. By agreeing to share, the purchaser unlocks a deal on that item for them and their friends.
To help spread the word of Facebook Credits, partnerships with large retailers such as Target, Wal-Mart and Best Buy were created to sell Facebook Credit gift cards.
All of these features are designed to connect users to brands, and the addition of allowing payments seems like the next logical step.
Facebook Credits vs. PayPal
Facebook is also taking this opportunity seriously; they recently admitted to securing Facebook Credits as Payment Card Industry compliant, meaning they have the ability to offer Credits as an option to purchase real goods, much like you would use your credit card or industry leading PayPal.
With this approval, companies like JC Penny could allow users to pay for real-world goods on their ecommerce site / Facebook fan page using Credits. Taking it one step further, as the number of sites that use Facebook Connect increase, users will now have the option to login through a trusted, convenient system with one click to share information and pay for items. Instantly eliminating the need to create multiple accounts.
When looking at this scenario, it seems Facebook is poised to replace PayPal. David O. Sacks, original COO and product leader of PayPal countered this idea by indicating that in February 2010, Facebook signed an agreement with PayPal, making them one of the main ways people funds credits, according to his Quora response.
Even so, Facebook Credits can be charged through all major credit cards, and so the real battle Facebook faces is education and adoption from its millions of users. At this time PayPal has over 100 million users. Forbes reports that Facebook is closer to 2.5 million registered users.
What could be next
So while Facebook continues to expand the opportunity to use Credits to purchase both virtual and real goods within the Facebook landscape, the jump to using Credits in the real world through mobile payments could possibly put Facebook in a position to be the main payment method.
Much like the Starbucks mobile payment platform, no matter how we eventually get to the point of paying for goods through our phones, an application will be involved. For Facebook this is a huge leap, with over 200 million users already accessing Facebook through mobile devices.
Let’s look at a scenario where we apply Facebook Credits with Facebook social action features. As a young adult in his mid-twenties, I enjoy playing video games like most of my friends, and so visiting my local Best Buy, I take a minute to open up the Facebook app, check-in and with that have been presented a deal for 10% off a specific game. Using Credits loaded on my phone (i.e. Facbeook Credits Giftcard), I make the purchase, walk up to the counter and using a bar code scanner complete the purchase.
If we take it one step further, as I scan the bar code to finalize my purchase, I am presented with the option to share this purchase with my friends. Selecting yes, opens up an additional discount for my friends and I. From there my friends have the option to use the promotion through Best Buy’s ecommerce page or on location.
For now, Facebook prefers to play down talk of its broader ambitions for Credits. The 30% tax Facebook imposes on those who accept Credits might be too high to allow for the regular sale physical goods and services. Both Google and Apple with 100 million iTune users and the iPhone show potential to own this space, but one thing is for sure, the mobile (social) payments market will be fragmented for the first few years and Facebook is easily in the position to come out victorious.