Facebook Credits: A Paypal in Training?

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I’ve been reading curiously about the new beta Facebook Credits platform.  Most coverage tends to focus on the unique elements of allowing users to vote economically for better content.  Give a good content producer some credits, and perhaps that will incent them to produce more.  Think Digg with economic value.  I think the launch of Credits again reflects the brilliance of Facebook and I for one see a much bigger play at hand.

Facebook understands very well the amount of money flowing into virtual goods, both from their own virtual goods, as well as the money machine created by their gaming partners like Zynga, SGN, and the like (who buy large chunks of advertising to feed their virtual goods money machine).  Enabling users to generate credits that work across games and applications would be of huge value, and allows Facebook to generate different and ultimately more economics from the platform developers.  In addition, Facebook now represents over 1 in 4 US pageviews.  Their user base is over 200 million.  They have HUGE scale, which allows them to have the credibility to pull off a payment play.  Users would inherently trust the FB platform over fragmented app creators.  This creates the perfect recipe for a Paypal alternative, and has inherent distribution that a Google Checkout or Amazon may not.

So why not just come out with the grand plan?  Well, the launch of a payment platform is non-trivial.  There are hundreds of ways it can go wrong; PayPal has spent years and huge sums of money learning lessons on how to deal with fraud.  Amazon, Google Checkout and others are all working through their own issues.  It also deals with one of the most sensitive items for people (ie, their money).  On a social platform like Facebook, the last thing you want to do is to alienate users.  Facebook cannot turn on a major transactional system that would be the immediate target of phishing, fraud, and rip offs without understanding the issues thoroughly.  The initial Credits approach lets them dip a little toe into the water, quietly and under the radar, and rapidly gain feedback/experience without exposing themselves to major financial or reputational damage.  With that knowledge, they can slowly train their way into the Paypal market.

I have a lot of respect for what Facebook has built.  And per my prior post, I think they are going to spread their tentacles broadly.  Facebook controls the social graph, Facebook Connect controls identity, Facebook “Communications” will come, and Facebook Payments on the roadmap…. Stay tuned, and note the date and time of publication, but that’s my highly speculative, uncorroborated and unsolicted vision for their future.

[Update 11/26/09 - looks like things may be happening behind the scenes .  This seems much more like a transactional fee, but I'd bet once it works internal to Facebook, it'll show up externally as a third party service but with a more paypal competitive pricing model.]

[Update 1/12/2010:  News flow indicating this is likely.]