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.
Online classifieds. I'd rather buy/sell something from/to someone I know or a friend-of-a-friend than a complete stranger.
When I had lunch recently at Facebook with a friend of mine (an ex-Googler), he agreed that Facebook should have rolled out a payment system much faster – as in – look what the iPhone Apps store did for application developers – a very easy and direct way to monetize.
Now imagine if the Facebook platform had come with a built-in payment system – Facebook could have monetized applications faster and more easily rather than now major Facebook applications monetizing through advertising primarily….
Too bad Zuckerberg didn't live Silicon Valley through Web 1.0's rise and dot com bust, otherwise he'd be more focused on monetization rather than growth, growth, growth….
John,
I agree – there was an opportunity for Facebook to have capitalized on the opportunity to provide a monetization solution for app developers. I kind of feel like that ship might have sailed – offer partners, PayPal, Zong, Boku, etc have that space pretty well covered at the moment. Many of the top apps are doing more revenue through virtual goods than ads – that's a great use case for direct payment systems.
interesting thoughts … payments, unlike general social media, has fraud/privacy/legal/compliance angle which very few realized. It took PayPal several years to build a decent/competent system. Interesting to see how Facebook would manage this, as it might “distract” its core competence
Facebook has to go through the adapting/learning process to excel in fraud protection which is HUGE! if they do that on facebook, they cud potentially sell their payments to all Connect partners. The adoption challenge is not w user but w the merchants I think!
Good post. However, I disagree with your assertion that PayPal is low friction – I find it very annoying and frustrating to pay with paypal because of the hassle of having to go through an additional log in process that I use rarely, so usually forget my password etc. I also get very annoyed with it when I just want to make a card payment and have to go through that whole process when it would have been quicker to just type my card details in.
If a retailer is already using Facebook Connect, then either a) I will already be logged into Facebook, allowing me to make an API payment with probably just a click, or b) I have a one-click log in to Facebook, and then a one-click payment. Both of these processes would be much easier for me that paying with PayPal.
Additionally, I dislike PayPal; I've been ripped off from them before with cases of fraud when using Ebay, as their protection was so weak. They've actually changed their terms now to make it much better, but for me (and lots of other people I know) the damage was already done. (specifically, if someone paid you for an item on ebay when they'd hacked into an account, even though you did everything in good faith paypal would take the money back from you even after you've sent the item. This was unfair and money grabbing, and if Facebook maintain their brand with their payment terms they can avoid this kind of thing).
Hi Joshua,
Thanks for the thoughtful comment. I do think that PayPal is generally low-friction at the time of purchase. All you need to do is to type in your email address, password, and off you go. I use PayPal for my conference business and can agree that the post-purchase experience is not the greatest and that fraud can be an issue.
PayPal has lots of people working on keeping that service safe and usable. Facebook has lots of people working on payments, too, but I'm not sure that they'll have the resources or focus to make a great user experience and manage the back and fraud / chargebacks that will inevitably arise. A simple 1-click experience for users is a proven value proposition – I'd like to see what Facebook ends up implementing.
Hi Charles,
I've been wondering the same thing as of late, and I can't see any reason why you would want to own your own payment infrastructure at this point. Its a nightmare to maintain, and with everyone competing on price per transaction so heavily right now, it doesn't seem like a good investment.
Also, the most pressing issue from where I sit is that there is simply too much risk associated with touching transactional data. Being subject to PCI is reason enough to just outsource and call it part of COGS.
Anyhow, that's my 2 cents (for this transaction 🙂 ).
Ohhh nice post. Actually i was think same kinda thing.Thanks for sharing information with us
Charles, I think having a simple yet powerful shopping cart which can enable employees to sell items from their own company could potentially revolutionize Facebook's member adoption of payments. Everyone could be an channel for their company sales which is ultimately tied to their social life anyway in terms of stability and work/life balance.
I know all of our current SaaS members as well as clients are watching us as we implement our Payvment “Storefront” inside of Facebook. We will also give spiffs to our members who put up the “Storefront” on their pages @CnC as well as Cazoomi for discounts on member products. As 2010 rolls out we will see how our members fare in their efforts. Hopeful.
Because the site’s sole way to http://www.myeasypayment.com login/register is connecting your account to Facebook, once your connected GreatBeatz has just about all the information they need from you to get a song commissioned. You’ll just need to specify a friend and enter in some lyrical inspiration.
It's unclear what the timeline is for a formal launch, … use this information to launch
It’s unclear what the timeline is for a formal launch, … use this information to launch