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Signaling Possible Plans Beyond Credits, Facebook Sets up a Payments Unit
March 10, 2011

Facebook Inc., a massive social network with more than 500 million users worldwide that is said by some experts to have ambitions in the payments business, has established a wholly owned subsidiary called Facebook Payments Inc. Facebook incorporated the entity in Florida on Dec. 10 and is advertising now for a controller for the unit.

Little is known about the new Facebook subsidiary beyond what is available in public documents. In response to queries sent to Palo Alto, Calif.-based Facebook, Digital Transactions News received this statement: "As is common in many company structures, we have established a subsidiary called Facebook Payments Inc. that helps handle payments to developers related to our Facebook Credits program."

But one expert who follows alternative payments closely says Facebook’s payments plans go well beyond Facebook Credits, a digital currency Facebook introduced two years ago. The currency lets users buy digital goods on the social-network site, with Facebook collecting a 30% fee.

Referring to job ads and other indications he’s seen in the market, George Warfel, consulting director for global payment solutions at Fiserv Inc., says Facebook is likely looking to build a payments system that could ultimately extend to the physical point of sale. “If you connect the dots, I’m very comfortable that those dots point to the fact that Facebook will have a payments capability that goes beyond Facebook Credits,” he says. Though Fiserv is based near Milwaukee, Warfel watches developments in Silicon Valley from his office in Oakland, Calif.

Facebook, has been steadily expanding the reach of its Credits product. This week, for example, Warner Bros. Digital Distribution began accepting Credits for movie purchases and rentals. The service, considered a test, will deliver content as streaming video without requiring users to leave Warner Bros. Entertainment’s Facebook page.

Among the current processors of Credits transactions is PayPal Inc., which Facebook started using early last year to handle both Credits purchases and payments for advertising on its site. This week, PayPal underscored its own ambitions to extend its reach to brick-and-mortar merchants by hiring Donald Kingsborough, formerly the chief executive of Safeway Inc.’s Blackhawk Network prepaid card unit.

While processing Internet payments might well be a lucrative business in its own right, the real prize is the much larger point-of-sale market, experts say, which is dominated by the well-established Visa Inc. and MasterCard Inc. networks.

Still, while Facebook may entertain strategies in payments beyond Credits, exactly how it might expand this capability to build its own payments platform—or perhaps even a rival network—remains murky. It also remains unclear how the new payments unit might be connected to these possible plans. “No one knows—maybe [Facebook doesn’t] know—their ultimate model,” says Warfel. The articles of incorporation for Facebook Payments Inc., available at the Web site for the Florida secretary of state’s office, gives as the entity’s purpose only this statement: “The corporation is organized for the purpose of transacting any or all lawful business.”

The document, however, does give the unit’s three directors, all of whom are listed with Facebook’s Palo Alto business address, 1601 S. California Ave, which is also listed in the document as Facebook Payments’ principal place of business. These three are David Ebersman, Dan Rose, and Ted Ullyot. Ebersman is chief financial officer at Facebook, while Rose is vice president of partnerships and platform marketing and Ullyot is vice president and general counsel. The president and chief executive is Prashant Fuloria, according to a “certificate of authority” issued March 1 by the Idaho secretary of state and available at that agency’s site. Listed as chief financial officer and secretary, respectively, are Jas Athwal and Benjamin Duranske. All three of these persons are also listed at the California Ave. address.

Facebook Payments Inc. issued 1,000 shares at its founding, worth a penny each, according to its articles of incorporation.

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