We know Facebook wants to be in payments – but how?
There has been a lot of speculation about the social network's plans to better connect buyers and sellers of goods and services. Does Facebook want to become the next Western Union (WU)? It has gone through the trouble of gaining money transmitter licenses in more than a dozen states.
Or does Facebook actually want to manage the risk associated with card-not-present transactions and extend credit to buyers, like PayPal and its BillMeLater service? The social network does look a lot like eBay (EBAY) before it bought PayPal. Before expanding into payments, each company brought together millions of buyers and sellers on a platform (eBay through its auctions, Facebook through games like Zynga's Farmville and through a Craigslist-like Marketplace page). Industry analysts argue this middleman role is the key to launching a payments system.
But I don't think either of these theories is right. My guess is that Facebook wants to be more like a processor.
Already it plays a role akin to that of the merchant processor. The prospectus for Facebook's upcoming initial public offering shows that roughly 17.6% of its total revenue in the first quarter came from fees it collects from merchants like Zynga that accept its digital currency, Facebook Credits, as payment for games and other applications on the social network.
For a quick comparison, look no further than Google's recent acquisition of TxVia. The search engine giant, too, would like to make a profit off people's spending. TxVia's software hedges against payment fraud in prepaid transactions. It could be adapted to help Google flag fraudulent mobile transactions.
Such a fraud-fighting service could be part of Facebook's mission as well. Facebook already handles a vital service for its merchants: currency conversion. Any game developer that works with Facebook can set prices in credits, which Facebook has already sold to consumers in their local currencies.
I think Facebook could care less about creating the next alternative payment system. Remember, it is first and foremost a technology company. Facebook is interested in eventually creating a place where you can pay in advance for a latte online and collect your drink at the register, while the social network tracks your every move so it can better target you with advertisements.
Facebook wants to gain transaction data to bolster its advertising business. And it wants to strengthen its core product, the social network, to bring more users to Facebook, more frequently.
Some of its other recent acquisitions suggest as much. In mid-April, it acquired the mobile rewards company TagTile. This San Francisco outfit offers merchants a cube-shaped device that people tap their phones against to get loyalty offers.
In the end, Facebook just wants to know everything about you. Payments happen to be the best way for consumers to show they really "like" a product.
Sean Sposito is a reporter covering technology for American Banker. The views expressed are his own.