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Friday, January 9, 2009

Facebook payments on back burner

According to Inside Facebook, a blog that tracks developments for social networking Web site provider Facebook Inc., the Palo Alto, Calif.-based company has put on hold plans to implement its own payment platform.

In a company press release, a Facebook spokesman said "pursuing a payment platform has been deprioritized while Facebook focuses on other revenue generating initiatives such as direct advertising and virtual gifts sales. We've been excited by advertising and payment solutions provided by the market, and we currently do not have anything to share around a Facebook payment system at this time."

However, payment professionals expect online social networking sites to take more active roles in processing payments from users in the future. While Facebook may not be implementing its own in-house payment platform, industry insiders suggest social networks may likely implement private-label credit, debit or check processing solutions developed by payment application providers.

Chasing challenges

"There is a real challenge to developing a new payment scheme," said Edward Woods, Payments Analyst for Celent LLC. "A site like Facebook has 100 million-plus users and has the scale to create a [payment] network. But the hurdles to development, including tackling risk and compliance issues, are significant.

"Facebook might make just as much money enabling an existing payment scheme to run over its network. It could charge users a few cents on each transaction, yet it could be designed so that it was easier to use and more tightly integrated than what is available today."

In December 2007, Facebook reported it was going to beta test its Facebook Platform payment system to allow users to make online payments directly inside Facebook applications. But the thought of competing with third-party payment platforms may have made the company hesitate to develop its own payment system.

"I don't know what they were even originally thinking along the lines of their own payment platform," said Brian Crozier, cofounder of UseMyBank Services Inc., a firm that facilitates real-time debit transactions through online bank accounts. "My thinking is that you control what strengths your company has; you keep the payment platform with the experts and not go reinventing the wheel."

Seeing green

Currently, online social networks like Facebook, MySpace, and LinkedIn allow person-to-person payments between network users, but buyers must leave the sites to use PayPal or Google Checkout to complete transactions. Crozier speculated that Facebook may have jumped on the transaction bandwagon without due diligence.

"It's a means to generate extra income and leverage what you already have," Crozier said. "You've already got millions of people on your site, so [Facebook] must have thought, 'How can I get in the action and make more money off of our demographic of young, online shoppers?'

"Well, you either start to make deals with the big companies or be realistic and continue to farm out your processing. Eventually they had to realize it wasn't their forte. But in the end, whether they implement a payment platform or not, there are no losers out there. The whole pie is getting bigger, so everyone's slice gets thicker as we go along."

When asked to comment on Facebook's plans, a company representative e-mailed The Green Sheet and said, "due to a high volume of requests, we are unable to respond to everyone at this time." end of article

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