Facebook Balks, But Expect Social Networks to Launch Payments

Don't look for Facebook to get into the payments business any time soon. According to a report this week in “Inside Facebook,” a Web site that tracks Facebook developments for software developers and marketers, the social network has put on hold a payments platform that the network had announced a year earlier it would build. The Web site says Facebook has not yet developed an e-commerce system that would allow visitors at the site to make payments independent of third-party payments companies, such as credit card processors or PayPal. Furthermore, Inside Facebook says it appears Facebook has not made payments a top priority. Facebook Payments had been viewed as a means for the site to generate fee revenue from user-to-user payments and also facilitate the ability of consumers to purchase virtual gifts from Facebook. Facebook representatives did not return calls for comment. At rival MySpace, a company spokesperson explains that person-to-person payments currently take place “off site” and payments facilitators keep any fee revenue that is charged for the transaction. She adds “there are no current plans for an in-house payment solution” at MySpace. Still, payments observers expect the social networks to take a more active role in payments in the near future. However, they believe the networks may not develop their own in-house platforms, but more likely will private-label a product developed by an existing payments company. “There is a real challenge to developing a new payments scheme,” says Edward Woods, a payments analyst for Boston-based Celent LLC. “A site like Facebook has 100 million-plus users and has the scale to create a network. But the hurdles to development, including dealing with 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.” Currently, social networks such as Facebook and MySpace allow person-to-person payments between network users, but the buyer must leave the social-network site and go to a payments network to complete the transaction. One common means of such payment is through PayPal. Using this method, for example, a user at the social network who wants to make a purchase from other users hits a link to PayPal. At the Paypal site, the buyer can elect to have funds taken out of a PayPal account or charge the purchase to a credit card. The payment can then be made into the seller's bank account.