All Things D was the first to report last week that Facebook will soon begin testing “its own PayPal competitor” that makes it easier for users to make purchases on their phones. But as TechCrunch astutely pointed out, the new feature isn’t really another mobile payment system: Rather than executing transactions, it enables users to auto-fill their billing information from Facebook on their phones or PCs with just a click or two rather than going through the cumbersome process of entering credit card numbers and other information.
The feature will be available in what the company called “a very small test” in the next few weeks to consummate purchases inside mobile apps — including Facebook Gifts, games within Facebook, apps users are directed to from ads on Facebook. And rather than compete with PayPal, it will work with the app’s existing payment processing provider.
So what’s the big deal?
Simplifying the purchasing process should be particularly effective in mobile, where typing in long lines of characters is especially trying. Facebook isn’t handling the actual transactions, so it won’t get a piece of those revenues, but it should help Facebook give its advertising partners a tremendous amount of visibility into their advertising campaigns – those advertisers will not only be able to tell whether a user clicked on an ad but also whether they bought anything and, if so, how much they spent. That will allow marketers to present ads that are much more accurately targeted based not just on a user’s search history and click-throughs but also on spending habits. And those ads should be much more lucrative for Facebook.
That’s a much smarter play than trying to compete with PayPal (and Google and the carriers and retailers) in the world of physical transactions in mobile. That market continues to spin its wheels thanks in large part to multiple competing “solutions” that don’t play well together. And margins will continue to be razor-thin – or even nonexistent – for providers of mobile transactions until the players involved can find a way to bring value both to the consumer and to the retailer. So Facebook would have been foolish to join that cutthroat – and uncertain – market.
There’s still plenty of time
This isn’t the first time Facebook has dipped its toes in the digital payments waters, of course. Facebook Gifts, a year-old effort to entice users to purchase presents online and send them to their Facebook friends, apparently has struggled. And last year Facebook pulled the plug on Credits, a virtual currency for payments within its platform that launched in 2009. So it’s clear that many users are uncomfortable sharing their sensitive financial information with Facebook, which continues to struggle to protect users’ privacy.
If the social network can somehow assuage those fears and get users to trust them with their financial accounts, though, it might just become a major player in mobile payments of all kinds. Facebook boasts more than 800 million mobile users, and its mobile app ecosystem should get a big boost from its recently-announced Mobile Games Publishing Platform. It continues to build a network of local advertisers that could be fertile ground for mobile marketing tools like check-ins and coupons. Positioning itself between online vendors and mobile users is a great move that could pay big dividends relatively quickly. And it could give Facebook the opportunity to cash in on mobile payments for physical goods when that segment finally begins to gain traction – even if the company isn’t powering those transactions itself.