Ran across this article on CNN last Friday about how Facebook was going to launch a micro-payment service. Facebook wants to introduce its own virtual currency system that involves credits, coupons, and other types of widgets that can be redeemed for goods or cash.
As recently as last fall, Facebook’s plans – reportedly called “Facebook Wallet” – were something much more like a straight-up, PayPal-like transaction platform.
“We think enabling developers to accept these credits as a form of payment has the potential to create exciting new use cases for users and developers,” spokesman David Swain said in an e-mail. “We do not have details to share at the moment because this will be a very small alpha, only a handful of developers, but will likely share more as we evaluate the results of the test.”
While it is up in the air if this is a full blown payment engine or just a virtual currency, it really does not matter. If Facebook offers the virtual goods and services, 3rd parties with quickly fill in the vacuum and provide conversion to other items of value as we saw happen in the gaming community. The concept of micro-payments has been around for a long time: we are talking a decade before payment providers like TextPayMe, PayMate or any of the other current payment providers started to morph the concepts of ‘micro’ payments, ‘XMS’ and ‘mobile’ payments into one. How many of you remember CyberCash? Or Transactor Networks? No? Then you probably don’t remember the Oracle Payment Server, Sun’s Java Wallet, Trintec, Verifone, or Paymantec – they all expressed interest in this type of payment strategy as well. And every one of them had to take into consideration automated fraud, money laundering, and theft. But many of these started as secure payment engines to be applied to other applications, and their relative degree of security was never fully tested.
There are plenty of start-ups that have attempted to launch virtual currencies that would be interoperable across participating developers’ and companies’ games and other applications.
None of them have become legitimate Web sensations, perhaps because of the inherent security concerns in online payments. Facebook already has millions of users’ credit card numbers on file from transactions through the Gifts app–its “credits” are in the lead before they even launch in full.
Very true, with a big difference being they were payment engines looking for the ‘killer app’, not the killer app looking for a way to create virtual currency. PayPal is one of the few success stories, succeeding largely after the eBay merger, with the remaining examples used largely to purchase pornography. But they are also far more simplistic in their value propositions, and do not have some of the complexity surrounding virtual currency, multi-payment objects, and complex pricing models. It is very appealing for Internet commerce sites that provide low cost services and cash conversions, and it could really help Facebook monetize the millions of users and developers who participate. Micro-payments and virtual currencies are a great way to generate interest in a web site and create user affinity in addition to providing a mechanism for participants to get paid for their contributions to a community.
But like any electronic payment system, if a security flaw is found, odds are that an exploit can be automated. While they may only be stealing pennies (or digital coupons) at a time, they can repeat the attack against thousands or, in the case of Facebook, 200,000,000 users, and wipe out an entire economy in a matter of hours. What better way to motivate hackers than to help them monetize their efforts as well? This is after all a platform that is ripe with scams, phishing, worms, and hacks. I kind of hope they roll this service out because this is going to be a lot of fun to watch!