Inside Social Apps 2010: As Social Payments Mature, Facebook Credits Grows

Leaders from payments companies active on Facebook shared their sometimes-conflicting views on how they see payments evolving, in a spirited panel today at our Inside Social Apps 2010 conference. Here are the highlights.

The single biggest question was how Facebook itself plans to grow its virtual currency, Credits. The company has been testing out Credits with a wide range of third parties since last year, following up on its initial tests running Credits in its Gift Shop.

Note: You can check out tweets from this and other conference sessions via the #isa2010 hashtag on Twitter.

The panelists we mention below included:

David Marcus, CEO, Zong
Vikas Gupta, CEO, Jambool (Social Gold)
Renata Dionello, Chief of Staff to the CEO, eBay
Dave Etling, VP Product Development, InComm
Dave McClure, Founders Fund Angel and fbFund (Moderator)

Zong and PayPal are both currently partnered with Facebook. Zong lets Facebook users buy Credits through billing their mobile account. PayPal lets users buy the currency using their existing PayPal accounts.

We’ve pulled some of the highlights from the panel, below. Please note that the text is paraphrased.

McClure: Describe how you see the current market for payments on social games?

Dionello: The volume of payments in the social space is still relatively small compared to e-commerce. Yet the growth of the freemium model may enable some of the payment methods we see on social networks today to expand to the open web.

Marcus: Some of the payment methods for virtual goods don’t translate well to broader ecommerce due to the cost of goods sold — you’re losing 50 percent to payment providers to get an extra conversion.

Dave McClure: PayPal is partnered with Facebook, but it also provides some of the same services.

Dionello: Payments identity is different from social identity. We have a different login for eBay versus Paypal. They want two separate ones including a more secure identity. We calibrate risk to venue. Digital goods historically have higher fraud rates.

McClure: You’re also partnering with a potential competitor. Facebook accepts its own credit card payments, for example.

Dionello: We’re a global payment network. A lot of users on Facebook were asking for a payment method. We enable it in 190 countries. We have a different focus and we see it as complementary. We help enable internationalization, we focus on fraud prevention and resolution and we have thousands of people working in this area.

McClure: Why didn’t Facebook and Paypal do a partnership two years ago?

You’d have to ask Facebook.

McClure: Is Facebook going to compete with Incomm, somehow, by providing some form of prepaid card?

Etling: Our main charter is to ensure that retailers still stay relevant. We want to keep them relevant. Either Facebook’s hypothetical credit card or something similar, I think it would be great. I think it would be complementary. We’re doing offline equivalent of online game mechanics via loyalty, etc. Most users buying prepaid cards are 13 to 24 years old. The sweet spot is 13 to 17. Retailers see this as purely incremental as it relates to consumers.

McClure: What type of fraud are you seeing?

Marcus: The type of fraud is usually friendly — teenagers buy games and then ask for refunds. We have different types of algorithms set up to detect this.

McClure: Facebook Credits: What are the strengths and weaknesses?

Marcus: Having this standard type of experience is good for users, they’re used to paying with Facebook Credits. Its implementation is the best that any partner has done so far — within 10 seconds of the first time doing a mobile payment, you’re done. Even the credit card flow is a very simple screen, that just has people get the basics in. It removes friction. Conversion for fb platform can potentially be much better using credits.

It’s also a good thing if there’s a single currency, as this means more liquidity in the market.

McClure: What portion of your business is on Facebook?

Gupta: 60-70%. The concern with any pre-paid currency is that it is in the hands of the 2-3% of users who pay. Facebook has been doing lots of experiments wth virtual gifts on the site. The only place Credits is working is social games.

McClure: What are your predictions for Facebook payments off the platform? Is credits a Trojan horse?

Gupta: Facebook is testing adoption. If it does have a big impact, there’s no reason why they wouldn’t come out with payments on Connect. Would fb credits be the right way? Or other payment methods?

McClure: What’s the number of Credits on the platform? Is it in the single digit millions of users? Maybe 5-10 million credit cards on file? Roughly equal to the adoption of virtual gifts. While Facebook rely on partnerships, or will they continue to rely on third parties? Will Facebook “fill in the holes?”

Marcus: Mobile is not an easy task. Among other things we have partnership with carriers around the world.

McClure: What are the future market opportunities for Incomm here? Isn’t a lot of the under 18 buyers using their parents’ credit cards?

Etling: First, this isn’t fraud. The retailer assumes risk of stolen card. We’re in 13-14 countries, and expanding. We have to be careful to not launch for a game before its time. But you need volume, you need to take care of retail slotting fees, things of that nature. Growth has been 200% for last three years. We’re doing $10 billion in face value transactions last year. Gaming is starting to make up a significant percentage.

McClure: Where do you see opportunities for payments in apps?

Gupta: We previously hadn’t seen lots of innovation in front end. The focus now will be getting large % of audience involved.

Marcus: Carriers are cutting fees and this could change the ecosystem by making mobile payments a bigger portion.

McClure: What will be the biggest online processor in 5 years? PayPal, Amazon, Apple, Google or Facebook?
Etling: Apple
Marcus: Facebook
Renata: PayPal
Gupta: Facebook

McClure: Apple and Facebook