Social Currencies to Disrupt Payments – Part 3 of 3

This is the third and final installment of the 3-part blog series on social currencies and its impact on payments. In part 1, I provided background on Google and Facebook’s social media intentions. In part 2, we took a look at the different payments business models of Google and Facebook, and here we examine some potential barriers as well as the opportunities in social currency adoption.

One hurdle (though minor, in my perspective) is that Facebook Credits charges 30% of earned revenue, which is relatively large in comparison to credit card processors and other options that are typically in the single digits. In the context of other online providers, the rate is in-line with Apple, Google, and Amazon that take 30 percent of all purchases made through iTunes, app stores, or Amazon’s eBooks store. For social game providers the benefits can outweigh the costs, which may be the reason why they are willing to adopt a more expensive, but secure, reliable, and frictionless payment system.

A different challenge that other successful technology companies have faced (i.e., Microsoft) are issues around monopolistic practices. At the same time that Facebook Credits became the only currency for Facebook, Consumer Watchdog, an advocacy group, filed an antitrust complaint with the Federal Trade Commission regarding Facebook’s currency. Their compliant alluded that Credits is an “anticompetitive” virtual currency that could drive up the prices of virtual goods. Could it hurt Facebook Credits? We’ll see.

In my view, a more significant inhibitor to growth and potential sustainable business models that both Google and Facebook face is privacy concerns. Both companies have been plagued with criticism over what they do with user personal data. The companies must balance the desire to integrate data across online marketing efforts and offline purchasing behavior, and earning the trust of consumers to get them to provide their payments credentialing information.

Opportunities in Social Currencies

However,if one or both of these companies are successful in getting users to save payment information on their site, it will yield significant returns. Consumers don’t hesitate to order a 99-cent song on iTunes or download a book that costs less than $10 on the Kindle. Although Google attempted with Google Checkout to establish a user base of one click check out, Facebook is in a better position to achieve that goal with the convergence of Facebook Connect with Facebook Credits. Facebook Connect enables third-party websites, software, and even mobile devices to integrate with Facebook with a single button. Like the Apple iTunes store or Amazon Kindle, Facebook has the potential to create similar stickiness in a closed environment.

As the momentum for social commerce grows, competition between the rival giants will intensify. The application of social currencies is numerous. In addition to micropayments, digital currency can expand to wider e-commerce. With businesses increasingly using Facebook fan pages to connect with their customers, they can monetize their following by offering deals and promotions on the social network, even providing e-commerce capabilities within a page. As people spend more time on social networking sites, they are likely to make purchases recommended through their connections. In turn, social currencies have the potential to become as valuable a payment instrument as real currency. If financial institutions don’t shift focus away from traditional currency as a medium of exchange, Google and Facebook could disintermediate banks from their current payments services customers, and ultimately create a different type of bank for the new era of payments. Then…it’s game over!

[Original blog post can be found here]

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