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What’s the Use Case for Facebook Payments Off Facebook?

I’ve had Facebook on the brain lately – not surprising given that I work at a company that builds games for the Facebook platform. One of the more interesting things I’ve been trying to figure out is the use case for a “Pay with Facebook” or Facebook payments solution off the Facebook platform.

Changing the way people spend money and pay for things is hard. I’d argue that most people aren’t looking for new ways to pay unless the new payment method either a) enable a class of people who weren’t able to pay before to transact or b) it’s way less friction than competing alternatives. Otherwise, why not just use your current method of payment? I can think of a few payment innovations that succeeded (or are in the early stages of succeeding) and my guess as to why they’ve gotten traction:

  • Bill Me Later – Allowed merchants to offer promotional financing and same-as-cash offers to e-commerce customers
  • PayPal – Enabled relatively frictionless person-to-person transactions for auctions and other use cases
  • Zong / Boku – Simple, fast, easy mobile payments using an existing billing system (the mobile phone)
  • PlaySpan / Blackhawk / InComm / GMG – Pre-paid cards enabling teens and other people to pay for digital content (iTunes, free-to-play web games, etc)

I also worked on a payment product, Google Checkout, that is a good product but has not taken off. The reasons for that probably belong in another blog post. Suffice it to say that launching a new payment product, even with the imprimatur of a very strong brand like a Google or Faceboo, does not guarantee broad commercial adoption.

I’ve been reading about how the “Pay with Facebook” option that’s being rolled out to developers might actually be made available to 3rd parties in the same way that Facebook Connect is being rolled out. I’m still not getting the rationale for why off-Facebook payments are a big deal. I do think payment on Facebook could be really interesting because they have the ability to make buying things on Facebook just as simple as Amazon 1-click by storing credentials and integrating payments deeply into trusted applications. Now for my concerns…

Fraud has many faces – having a social graph (might) only address a few – Taking payments is a risky business. You’re always going to experience fraud, whether it’s friendly fraud or truly nefarious activity. Given that you can set up a fake Facebook profile, I’m not entirely convinced that the “verified” nature of Facebook identity is sufficient to reduce nefarious or friendly fraud. I need to be convinced of this argument before I’m willing to buy that merchants would view a “Paid with Facebook” transaction as being more trustworthy than a standard credit card transaction.

Merchants tend to be interested in offering payment options that convert well. Will enough Facebook users payment-enable their accounts to reach critical mass? How is Facebook going to get people to payment-enable their accounts? Sure, those who have purchased virtual goods or credits have a credit card on file with Facebook. But what about the other large percentage of users who don’t have a card or payment source on file? What will Facebook do to induce those users to register and how much will these inducements cost?

Beacon had some things right – the primary benefit of off-Facebook payments is likely to be a tight integration with the newsfeed or social graph – Say what you will about Beacon, the idea of publishing actual purchase or transaction data into a user’s social graph is a really powerful signal and a benefit that no other payment option can currently offer. For some categories that are inherently social (movie tickets, concert tickets, general entertainment and lifestyle purchases, life milestones, etc), the ability to broadcast a transaction could drive additional downstream revenue from people who see that activity and choose to transact. Is this a sufficiently powerful incentive for merchants to adopt off-Facebook payments? Depends on the complexity of integration, rate of adoption by consumers, and the number of downstream transactions they’d need to see to get a reasonable payback on the engineering effort.

My guess is that those e-commerce sites that have a positive experience with Facebook Connect will be first in line to trial a payments offer as a ride along.

What am I missing? Help me figure this out by leaving a comment.