Facebook (FB) created a stir recently on word it’s testing a payments product that lets shoppers make purchases on mobile devices using their Facebook login information.
Facebook confirmed the test but has provided few details. The pilot raises the possibility that Facebook might develop its own payments service, at least for mobile devices, vs. eBay’s (EBAY) PayPal, the world’s No. 1 online payment system. Other contenders in online payments include Google (GOOG).
Analysts say the idea has merit — and challenges — for Facebook.
Facebook, led by CEO Mark Zuckerberg, above at a recent company event, is testing payment services. View Enlarged Image
One big hurdle is whether users would trust the social network site with their personal credit card information. Cyberattacks just in the past year or so that affected Facebook, Twitter and other websites have heightened worries.
“No one trusts Facebook for payments,” Forrester Research analyst Sucharita Mulpuru-Kodali said flatly.
Word that the No. 1 social media network, with 1.15 billion users, might enter online payments caused eBay shares to fall as much as 5% on Aug. 15, though many observers downplay any threat.
PayPal dominates online payments with about 132 million active user accounts worldwide.
Just what Facebook plans in the payments field isn’t known. The company declined to comment.
Tech news website AllThingsD reported on Aug. 15 that Facebook plans to challenge PayPal directly in a test, letting shoppers purchase items on mobile devices without entering billing information, since Facebook would have the info stored already. These test shoppers would have previously provided Facebook with credit card details.
But news site TechCrunch downplayed the idea of a direct challenge to PayPal. It won’t do full payments processing, said TechCrunch, but would guide users to make the payment via, presumably, Visa (V), MasterCard (MA) and other options, including PayPal.
Many analysts say Facebook has to do something in payments, as a service to its huge user base and probably as a way to boost revenue.
Facebook’s payments test “absolutely competes with PayPal” by steering payments transactions away from PayPal, said Forrester’s Mulpuru-Kodali, who assumes Facebook will give trial users the options of using PayPal and also many other payment providers. Facebook’s test shoppers are expected to include many online gamers who already have provided the social network their credit card information to make game-related purchases, an outgrowth of Facebook’s relationship with social gaming company Zynga (ZNGA). It’s not clear, though, how many nongamers have shared credit card info with Facebook.
Uneasy Giving Card Info
But Facebook would have to convince more shoppers that their credit card information is safe, in order to offer a payments system.
A survey for global brand agency Digitas conducted by Harris Interactive last year found that 55% of U.S. social media users say they’re not “comfortable” giving their credit card information to social media sites such as Facebook and Twitter. The other 45% are comfortable or at least “somewhat” comfortable doing so.
Women, people over age 55 and lower-income households were less likely than others to be comfortable sharing such data, the poll found.
Several hacking incidents involving Facebook have raised security concerns.
On Aug. 19, Facebook founder Mark Zuckerberg’s Facebook profile reportedly was hacked by a Palestinian researcher who found a security flaw. In December 2012, an Israeli hacker calling himself “Hannibal” claimed he had stolen 185,000 logins from Arab Facebook users. And hundreds of thousands of Twitter followers have been affected by security breaches in the last few years.
Forrester’s Mulpuru-Kodali says that even if Facebook doesn’t do full payment processing, just giving people an easy option to make payments via a non-PayPal avenue represents potential competition for PayPal.
Mulpuru-Kodali doubts Facebook has even as many as 10 million credit card numbers on file from its U.S. users. And she says most of them are online gamers who usually don’t make large purchases.
More upbeat is Philip Philliou, managing partner of Englewood Cliffs, N.J.-based payments consulting firm Philliou Partners, who says the notion of Facebook entering payments “has enormous potential.
“The magic of Facebook for advertisers is that they connect with consumers in a personal and targeted manner, which could lead to real-time sales,” Philliou said. “Facebook payments could be that frictionless payment method to facilitate that sale.”
Responding To Social Media
As a hypothetical example, Philliou says online restaurant reservation website OpenTable (OPEN) could be an avenue for Facebook to sell restaurant gift certificates with payment via Facebook. “We estimate that selling restaurant gift certificates online in partnership with OpenTable could be a $250 million business in the U.S.,” Philliou said.
Facebook’s payments test is merely another attempt by Facebook to enhance its user experience, says Jim Tobin, general manager of mobile solutions for financial services and tech provider Fiserv (FISV).
“I’m not sure (Facebook) is taking on PayPal as much as responding to users in their social media environment who want to do more and want to do it in a context of social interactions. One of those things is to be able to pay for things,” Tobin said.
Tobin says Facebook’s payments test is part of its effort to build up its mobile ad strategy.
“You can satisfy a user by having a one-click ability to pay for things (after they see an ad),” Tobin said. “Advertisers, especially on mobile, don’t want users to just see an ad. They want users to be able to click on an ad to buy.”
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