Facebook Testing Another Way to Pay Pals

By Peter Bernstein August 15, 2013

This is another one of those instances where they had me with the headline. Popular site AllThingsD got the desired result with this as their lead-in, Facebook to Test Its Own PayPal Competitor in Bid to Simplify Mobile Purchases. It turns out that while a great way to engage readers, it is not necessarily a description of what Facebook is doing.

Facebook did confirm to inquiring minds that it is in fact testing a new payments product that would allow online shoppers to buy stuff via mobile apps that use the Facebook login info. The way it would work is that if you have given up (sorry, provided with permission) your credit card information to Facebook, you will be able to make purchases on partnering company apps without entering the billing information.

I will confess that rather than try to remember all of my login information – not just for transactional sites but everything, including the alumni sections of the places I went to school – I find using Facebook as my login to be extremely convenient. In fact, if this is all that Facebook is testing, I might give the service a whirl when it becomes available. That said, I will also admit that giving them my credit card data and thus opening up my personal information (who knows what the terms and conditions will be when/if this goes full bore) dampens my enthusiasm more than a little. Indeed, thus far, I have resisted the temptation to do so.

The plot thickens on this story when you scroll down the page and see the update. 

(Update 12:15 pm ET: Facebook sent the following statement to AllThingsD after publication on Thursday: “We continue to have a great relationship with PayPal, and this product is simply to test how we can help our app partners provide a simpler commerce experience. This test does not involve moving the payment processing away from an app’s current provider.”)

In other words, at least for the moment, in a world where all things digital are temporal at best, Facebook wants pals to continue to use PayPal as their processor.

The reason for the hedging on my part as to why what seems benign might be the camel getting its nose under the tent before barging all the way in, is that at the end of the day, this is not going to be a continuing saga about payment processing, but rather another one of those “big data” selling behavioral information so merchants can better “anticipate our needs before we even realize we have them” items. 

As the article correctly points out, a host of start-ups and established players all want to make the transactional experience frictionless and secure. Cutting out the need for replication of personal information protected by passwords we don’t remember certainly advances the ball on that front. However, payment processing is the commodity here. It is not a bad one since margins are good and it is an annuity revenue stream, particularly if you were a first and fast mover like PayPal and have created substantial barriers to entry based on your scale and scope.

It is that valuable data capture of behavioral activity piece that is the real pot of gold at the end of the rainbow. In this regard, PayPal, despite Facebook’s benevolent words, needs to be on its guard. This is true of course not just because of Facebook’s interest, but obviously because of the multitude of interests now circling around the opportunity to make personal devices our transactional platforms of choice, particularly when we are mobile. The name Google comes to mind, but don’t for a minute believe that the credit card companies themselves, and interests representing the breadth and depth of the financial services and retailing sectors (WalMart comes to mind on the later), are not already deep into figuring out how to not just enter but dominate this space.

PayPal may be the 800-pound gorilla for now, but as in so many markets, the old famous quote from baseball pitcher Satchel Paige seem appropriate, “Don’t look back, someone might be gaining on you.” It may even raise an interesting question in the future, “Who do you trust to pay, a friend or a pal?”

Edited by Ryan Sartor
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