PayPal relaunched a peer-to-peer payment Facebook app today that some news outlets are misinterpreting as a partnership between the two companies. I’ve confirmed with Facebook that it’s not. It’s just a standard application on the platform, and Facebook couldn’t really do anything to stop PayPal. But why hasn’t Facebook built its own way for friends to send money to each other using its virtual currency Credits? Because of significant fraud risks and its focus on making Credits work better for virtual goods purchases where it earns 30%.
The first incarnation of Send Money was launched in December 2009. It lets you pay friends through a credit card or your PayPal account. What’s new is that you can now also opt to include a digital greeting card, good for sending money on birthdays and other holidays. The only Facebook data the app needs is your friend list, and even then you still have to hunt down a payment recipient’s email address before you can transfer funds. Send Money doesn’t integrate with Facebook’s own payment system, it doesn’t require any secret data or APIs, and I’ve heard it wasn’t even built inside PayPal.
Facebook has its own payment system that lets users receive its virtual currency Credits in exchange for money paid through credit cards, PayPal, and other means. Users spend the Credits in social games for power-ups or extended game time, and the developers redeem these Credits for 70% of their worth while Facebook keeps its 30% tax.
The primary reason Credits can only be spent in games and apps, not sent to other users, is fraud. There are several ways for users to earn Credits instead of paying for them, such as completing on-site offers, or making off-site purchases that are incentivized with Credits rewards through companies like ifeelgoods. If users could transfer Credits to someone else, the occupation of “Credits Miner” would emerge. These people would earn Credits any way they could and sell them to others for more than they cost to earn but less than Facebook sells them for. This would essentially create a secondary market for Credits and undermine Facebook’s ability to make money on them.
P2P Credits transfers would also make users a more lucrative target for hackers. Someone could steal your account info and dump your existing balance of Credits into their own account, or even buy more Credits in your name and send them to themselves. When Facebook originally developed Credits, it correctly determined that it could significantly reduce its risk of fraud by disallowing P2P transfers.
The other main reason there’s no Credits P2P payments is because it not Facebook’s focus, due to a mix of developer ecosystem politics, long-term monetization, and Facebook’s lean startup style. Facebook and PayPal are close. They’re strategic partners, with PayPal helping the social network process Credits purchases, and PayPal’s founder Peter Thiel is an early investor and advisor to Facebook. Moving into P2P payments could upset this partnership, and lead PayPal to remove itself as a Credits purchasing method.
To be competitive, Facebook would only be able to take a few percent on transactions, and still it wouldn’t have the base of merchants PayPal cultivated through eBay. Instead, Facebook is focusing on Credits as its platform’s mandatory virtual goods payment processor for developers, where it earns its juicy 30% cut. That business is growing thanks to gaming giants like Zynga, so there’s no need to move into a risky sector such as P2P payments that’s outside its core competencies and dominated by incumbents.
Facebook is still a relatively small company. It needs its Credits team optimizing payment flows and fostering partnerships to milk the virtual goods market. It also needs to make Credits as a better payments processor for apps, through which more content companies are selling digital media like film rentals.
Right now, Facebook simply doesn’t have the resources to divert attention to P2P payments, and there’s no indication that such a need isn’t already being met off-site by PayPal, even if the Send Money app didn’t exist. One day that could change, especially if social ecommerce takes off and it allows Credits to be used to purchase physical goods from approved merchants. For now, Facebook is making the same smart choice about P2P payments as it made about virtual gifts, social games, music, and brand management — leave it to third-parties and concentrate on improving its core infrastructure.
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NBA Lockout <b>News</b>: Eventually A Hopeful Rumor Might Actually Be <b>...</b>PayPal relaunched a peer-to-peer payment Facebook app today that some news outlets are misinterpreting as a partnership between the two companies. I’ve confirmed with Facebook that it’s not. It’s just a standard application on the platform, and Facebook couldn’t really do anything to stop PayPal. But why hasn’t Facebook built its own way for friends to send money to each other using its virtual currency Credits? Because of significant fraud risks and its focus on making Credits work better for virtual goods purchases where it earns 30%.
The first incarnation of Send Money was launched in December 2009. It lets you pay friends through a credit card or your PayPal account. What’s new is that you can now also opt to include a digital greeting card, good for sending money on birthdays and other holidays. The only Facebook data the app needs is your friend list, and even then you still have to hunt down a payment recipient’s email address before you can transfer funds. Send Money doesn’t integrate with Facebook’s own payment system, it doesn’t require any secret data or APIs, and I’ve heard it wasn’t even built inside PayPal.
Facebook has its own payment system that lets users receive its virtual currency Credits in exchange for money paid through credit cards, PayPal, and other means. Users spend the Credits in social games for power-ups or extended game time, and the developers redeem these Credits for 70% of their worth while Facebook keeps its 30% tax.
The primary reason Credits can only be spent in games and apps, not sent to other users, is fraud. There are several ways for users to earn Credits instead of paying for them, such as completing on-site offers, or making off-site purchases that are incentivized with Credits rewards through companies like ifeelgoods. If users could transfer Credits to someone else, the occupation of “Credits Miner” would emerge. These people would earn Credits any way they could and sell them to others for more than they cost to earn but less than Facebook sells them for. This would essentially create a secondary market for Credits and undermine Facebook’s ability to make money on them.
P2P Credits transfers would also make users a more lucrative target for hackers. Someone could steal your account info and dump your existing balance of Credits into their own account, or even buy more Credits in your name and send them to themselves. When Facebook originally developed Credits, it correctly determined that it could significantly reduce its risk of fraud by disallowing P2P transfers.
The other main reason there’s no Credits P2P payments is because it not Facebook’s focus, due to a mix of developer ecosystem politics, long-term monetization, and Facebook’s lean startup style. Facebook and PayPal are close. They’re strategic partners, with PayPal helping the social network process Credits purchases, and PayPal’s founder Peter Thiel is an early investor and advisor to Facebook. Moving into P2P payments could upset this partnership, and lead PayPal to remove itself as a Credits purchasing method.
To be competitive, Facebook would only be able to take a few percent on transactions, and still it wouldn’t have the base of merchants PayPal cultivated through eBay. Instead, Facebook is focusing on Credits as its platform’s mandatory virtual goods payment processor for developers, where it earns its juicy 30% cut. That business is growing thanks to gaming giants like Zynga, so there’s no need to move into a risky sector such as P2P payments that’s outside its core competencies and dominated by incumbents.
Facebook is still a relatively small company. It needs its Credits team optimizing payment flows and fostering partnerships to milk the virtual goods market. It also needs to make Credits as a better payments processor for apps, through which more content companies are selling digital media like film rentals.
Right now, Facebook simply doesn’t have the resources to divert attention to P2P payments, and there’s no indication that such a need isn’t already being met off-site by PayPal, even if the Send Money app didn’t exist. One day that could change, especially if social ecommerce takes off and it allows Credits to be used to purchase physical goods from approved merchants. For now, Facebook is making the same smart choice about P2P payments as it made about virtual gifts, social games, music, and brand management — leave it to third-parties and concentrate on improving its core infrastructure.
* Copyright © 2011 Business Insider, Inc. All rights reserved.
Registration on or use of this site constitutes acceptance of our Terms of Service
and Privacy Policy.
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