PayPal’s Send Money App, and Why Facebook Never Built P2P Credits Payments
PayPal relaunched a that some news outlets are misinterpreting as a partnership between the two companies. Iâve confirmed with Facebook that itâs not. Itâs just a standard application on the platform, and Facebook couldnât really do anything to stop PayPal. But why hasnât Facebook built its own way for friends to send money to each other using its virtual currency Credits? Because ofÂ significantÂ fraud risks and its focus on making Credits work better for virtual goods purchases where it earns 30%.
The first incarnation of Send Money was . It lets you pay friends through a credit card or your PayPal account. Whatâs new is that you can now also opt to include a digital greeting card, good for sending money on birthdays and other holidays. The only Facebook data the app needs is your friend list, and even then you still have to hunt down a payment recipientâs email address before you can transfer funds. Send Money doesnât integrate with Facebookâs own payment system, it doesnât require any secret
data or APIs, and Iâve heard it wasnât even built inside PayPal.
Facebook has its own payment system that lets users receive its virtual currency Credits in exchange forÂ money paid through credit cards, PayPal, and other means. Users spend the Credits in social games for power-ups or extended game time, and the developers redeem these Credits for 70% of their worth while Facebook keeps its 30% tax.
The primary reason Credits can only be spent in games and apps, not sent to other users, is fraud. There are several ways for users to earn Credits instead of paying for them, such as completing on-site offers, or making off-siteÂ purchases that are incentivized with Credits rewards through companies likeÂ . If users could transfer Credits to someone else, the occupation of âCredits Minerâ would emerge. These people would earn Credits any way they could and sell them to others for more than they cost to earn but less than Facebook sells them for. This wouldÂ essentially create a secondary market for Credits and undermine Facebookâs ability to make money on them.
P2P Credits transfers would also make users a more lucrative target for hackers. Someone could steal your account info and dump your existing balance of Credits into their own account, or even buy more Credits in your name and send them to themselves. When Facebook originally developed Credits, it correctly determined that it could significantly reduce its risk of fraud by disallowing P2P transfers.
The other main reason thereâs no Credits P2P payments is because it not Facebookâs focus, due to a mix of developer ecosystem politics, long-term monetization, and FacebookâsÂ lean startup style. Facebook and PayPal are close. Theyâre strategic partners, with PayPal helping the social network process Credits purchases, and PayPalâs founder Peter Thiel is an early investor and advisor to Facebook. Moving into P2P payments could upset this partnership, and lead PayPal to remove itself as a Credits purchasing method.
To be competitive, Facebook would only be able to take a few percent on transactions, and still it wouldnât have the base of merchants PayPal cultivated through eBay. Instead, Facebook is focusing on Credits as its platformâs mandatory virtual goods payment processor for developers, where it earns its juicy 30% cut. That business is growing thanks to gaming giants like Zynga, so thereâs no need to move into a risky sector such asÂ P2P payments thatâs outside its core competencies and dominated by incumbents.
Facebook is still a relatively small company. It needs its Credits team optimizing payment flows and fostering partnerships to milk the virtual goods market. It also needs to make Credits as a better payments processor for apps, through which more content companies are selling digital media like film rentals.
Right now, Facebook simply doesnât have the resources to divert attention to P2P payments, and thereâs no indication that such a need isnât already being met off-site by PayPal, even if the Send Money app didnât exist. One day that could change, especially if social ecommerce takes off and it allows Credits to be used to purchase physical goods from approved merchants. For now, Facebook is making the same smart choice about P2P payments as it made about virtual gifts, social games, music, and brand management â leave it to third-parties and concentrate on improving its core infrastructure.