|
Jun 02
2009
|
Facebook testing new micro-payments platformPosted by: Dave on Jun 2, 2009 Tagged in: payment processing , online payments , multiple payment options , micro-payments , facebook , e-commerce
|
|
Last month there were some reports that Facebook were about to start testing a payments system with developers over the coming weeks. At the time details were a bit scarce but the general idea appeared to be that they were creating some kind of virtual currency called "Facebook Credits" based on the US Dollar.
On June 1st finextra reported that Facebook has begun testing a virtual currency payments system with the GroupCard application. The GroupCard application is powered by www.GroupCard.com. It allows you to create greeting cards that you can sign and invite your friends to sign also. Right now the application has 144,026 active users.
In the GroupCard application users now have the option to "Pay with Facebook" along with the other payment options such as Visa and Mastercard. The virtual currency can be purchased from the Facebook Gift Shop with one facebook credit costing 10 cents (USD). Similar to the Pay-as-you-Go mobile phone business model, customers will purchase credit to be used in small amounts as they wish. TechCrunch recently have reported on the story providing screenshots of a purchase on the GroupCard application using the facebook currency.
The Facebook Gift Store was already charging 10 points for certain gifts. If you select a "Gift" and you do not have any credits you are prompted to purchase some credits as follows:
The Gift Store was launched in Feb 2007 and appears to be doing quite well. So Facebook are now extending their credits platform to be used as virtual currency in applications outside of the Facebook Gift Store. If this virtual currency becomes popular with Facebook users then we could see it expanded outside of Facebook to be used for micro-payments throughout the Internet. This is where things would get interesting. In the past, several companies have attempted to provide micro-payments but trust is a big issue in this area and typically this is the reason they have failed. In the case of Facebook it is a well known brand with a strong following - circa 200 million members and currently 54 thousand applications so they are well poised to overcome these obstacles.
I think Facebook providing micro-payments is good news for Facebook, Facebook members and Facebook application developers. The virtual currency will help cut down on transaction processing fees i.e. members will buy credit in bulk which will result in one transaction. The members will then make many virtual currency transactions using this currency allowing Facebook application developers to generate revenue from their applications. I am sure Facebook will take a small slice of each payment also so everyone wins.
Facebook are not the only organisation looking at micro-payments. The Wall Street Journal, one of the few remaining news websites that still charge for accessing their content, announced last month that they are looking to introduce a micro-payments scheme this autumn. Apple announced that their iPhone 3.0 software will provide the ability to do in-game micro transactions. The App Store allows users to purchase applications and games for their iPhone or iPod touch but the users must pay upfront for the application. The introduction of in-app micro-payments will change the dynamics of this and also provide an incentive for application developers to continue enhancing and adding new content after an application has been released. Developers will receive 70% of the purchase price of any in-app items they sell and they will be paid on a monthly basis with no credit card fee's applied. This follows the "batch and bill" process that Apple implemented with iTunes which helps to cut down on transaction costs by billing customers once for their purchases during the previous week. However not everyone is happy about the introduction of in-app transactions as they think it will result in lots of apps turning into trial apps where you have to make further payments to unlock functionality that should have been included in the basic application.
I think micro-payments are a great idea and I will continue to follow the Facebook and Apple stories to see how they progress over the next few months. I am surprised that PayPal have not entered more aggressively into the area of micro-payments. Currently they provide micro-payments pricing which they say is designed for merchants who process low-volume transactions typically under $10 in value.
Dave
--
If you liked this article then you should subscribe to our 
Blog RSS feed.
UPDATE(S)
05-06-09
InsideFacebook.com interviewed Facebook CEO Mark Zuckerberg about the future of the company. They asked if the majority of transactions would take place within Facebook.com, or on other website. Mark did not dismiss the idea of transactions taking place externally but said having the transactions within Facebook.com was a good starting point.
written by John Clarke , June 03, 2009
Hello,
Facebook are trying to push the idea that this will "help cut down on transaction processing fees". Yet the main reason Facebook have introduced their own payment type is to try and develop a revenue stream for themselves. How will they maintain the balance between the two of these will be interesting to watch. In payments, as everywhere else, there is no such thing as a free lunch - someone in the transaction chain is paying. Merchants (rightly) grumble about Acquirers fees, but I've yet to come across a more cost effective way of taking payments from a worldwide audience.
Regards
John
written by dave lowry , June 03, 2009
Hi John,
I agree that Facebook are introducing this to develop a revenue stream from themselves. Instead of paying the typical acquirer fees merchants will pay a fee to Facebook. But the current online payments setup does not work well for micro-payments as the cost of processing the payment could be more the amount of the actual payment. So I think a "Virtual currency" is a good approach for micro-payments. If I want to charge someone €1 or less then a typical online credit card authorisation is not really a viable option.
Dave
written by John Clarke , June 03, 2009
Dave,
good point on the micro-payments enablement. But if I preload my Facebook account with 100 credits ($10), and do 100 micro-payments of 1 credit each, I wonder how much fees will be generated for Facebook. My guess is that it will be significantly higher than would be charged for a $10 Visa or Mastercard transaction.
So if the pitched Facebook payments as "enabling micro-payments", this is valid. But they are pitching it as "help cut down on transaction processing fees", which I don't think will be the case - call me a cynic.
And don't get me started on PayPal's pitch of "faster & more secure", for a solution that is way slower, and no more secure that standard payments - just because they keep saying it, does not make it true!
Regards
John
written by osearcaigh , June 03, 2009
Hi All, nice article, micropayments have been a difficult one so far, but this has an interesting twist on micropayments from what we know as payment processors.
Lets put the initial standard payment transaction fee aside for a second and use John's example, on 100 transactions of $1 how much would each app developer pocket? Say its the same as what Apple propose, - 70c according to Dave's research. That leaves 30c to Facebook. Thats not a 30% transaction fee, presumably it includes *some* transaction fee but the 30% also includes the whole system supporting the ability of the developers to do anything in the first place, it's monetizing a system they have built. So the question I see is, is 30% too steep? Should (Could?) there be an Adwords-like sliding scale of (micro)charges determined by the market? The payment here isn't a third party service, the payment system is embedded in the model.
So, I take your point John but the idea is somewhat different and transaction fees can't be directly compared to a standard transaction, which leads me to wonder have facebook released anything justifying 30%?
written by John Clarke , June 04, 2009
I guess Facebook can justify taking 30% because they own the marketplace. But taking such a massive slice of the revenue could only be achievable in a closed environment. If Factbook are planning to try and make this a general purpose micro-payment solution (i.e. for other web sites outside of Facebook), they will not be able to maintain this margin. Would e.g. the Wall Street Journal give away 30% of it's micro-payment revenue to a 3rd party like Facebook?
We can compare with the situation in the mobile payment market. Because the Mobile operators insist on keeping such a large share of any mobile payment revenue (typically 25% to 50%, and even higher in certain countries), this has totally stifled the development of mobile payment.
written by dave lowry , June 04, 2009
Hi guys,
We do not have actual pricing figures for Facebooks payment platform yet, that 30% figure referred to in the Article relates to the Apple in-app micro-payments. This fits with Johns point that this level of margin can only be achievable in a closed environment. In the case of Apple they facilitate the selling of the applications via the app-store and also the in-app payments.
Dave
